January 8, 2014 / 8:29 AM / 4 years ago

ASIA CREDIT CLOSE: Potential supplies weigh heavily on high-yield paper

SINGAPORE, Jan 8 (IFR) - Asian financial markets were a mixed bag today with stocks generally gaining across the region, while credit spreads were widening and high-yield cash bonds were underperforming.

Better economic data out of the US yesterday supported equity-related risk sentiment, leading to the Nikkei closing 2% higher and the Hang Seng Index rising over 1%.

However, lower-than-expected PMI data in Asia’s largest economy continued to pressure the iTraxx Asia IG Index, which was about 2bp wider to 135bp/138bp. China’s five-year CDS was 3.5bp higher, while Thailand’s CDS rose about 2.5bp.

As for cash bonds, a strong issuance pipeline is weighing heavily on the high-yield paper, which had gapped out 2 points in the last two days. China property paper bore the brunt of it with CoGard and Shimao seeing their yield curves widen about 2 points since earlier this week.

Most of the new Chinese notes widened further today, albeit marginally. On Monday alone, three Chinese property companies priced USD1.36bn of bonds. With more supply pending, the new bonds struggled to stay afloat.

KWG 2019s, reoffered at par, were quoted at 99.70/99.90, slipping further from 99.80/99.95 this morning. Kaisa 2018s, reoffered at 101, were at 100.50/101.00, while R&F, reoffered at par, were at 99.50/99.75.

“In general, we are seeing more institutional selling, while retail buying has been in very small amounts,” said one trader. “I think, we will see the high-yield paper moving lower.”

The one exception has been Sri Lanka. Its 5-year notes, sold on Monday at par, were indicated at 100.75/100.80.

Investment-grade paper fared better with Kexim’s new 10-year notes rallying 7bp from the reoffer spread of 112.5bp. The newly priced bonds from Indonesia were also gaining after receiving a robust response yesterday. The 2024s were at 100.50/100.60, while the 2044s were at 100.50/100.70.

Analysts expect some USD105bn of bonds to be sold in the Asian G3 markets this year, with sovereigns, Korean issuers and regional banks leading the way.


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