May 30, 2014 / 9:07 AM / 4 years ago

ASIA CREDIT CLOSE: May ends on strong footing, Asia watches ECB

HONG KONG, May 30 (IFR) - Asia credits ended the month on a positive note as a benign issuance environment and a rally in global government bonds increased investor appetite for fixed income.

The Asia ex-Japan IG iTraxx index was quoted at 106bp, from 110bp yesterday. It is heading to its tightest level in nearly a year.

Accounts continued to buy Indonesian and Philippine sovereign bonds that were hovering near their highest levels. The Philippines and Indonesian 2024s were cited at 107.375 and 112.375, respectively, while their 2044s were trading in the area of 118.25 and 113.625, according to a Singapore-based trader.

Those bonds usually move in tandem with US Treasuries, which have rallied this month.

Sentiment towards Chinese property names also has continued to improve since mid-month after the government released policies to encourage banks to loosen restrictions on mortgage lending.

China’s banking regulator said today that overall property loan risk is controllable and it will act to ensure future risks are managed to prevent contagion.

Kaisa Group Holdings’ new USD400m 9% 5-year non-call 3s that priced yesterday were bid 1.5 points higher from their reoffer at 100.50. The Kaisa deal had received nearly USD6bn in orders a week after Moody’s upgraded it by one notch to Ba3.

Country Garden’s USD550m 5-year non-call 3s, which priced on May 15, were bid at 101.50.

“I think investors are differentiating between good and bad property developers,” according to a private bank investor.

“The moral of the story is, certain well known real estate developers will have good credit story to tell and will continue to have access to the market even though the sector is slowing down and earnings are getting pressured.”

New Indian bank credits such as ICICI Bank and Syndicate Bank have also taken advantage of the tightening trend in that sector, which has narrowed about 45bp-50bp in the past three months.

One investor said most of the positive news from Indian banks has been reflected in secondary levels, and buyers will be waiting for concrete improvements in structural reforms.

Yet buyers also are monitoring potential risks to the sector, including how rating agencies will act on India’s proposals to give depositors seniority over bondholders.

“Indian bank bonds may take a breather from here,” said the investor. “But the minute the government implements bail-in measures, we probably will see an exodus or profit taking out from these bonds.”

Traders and bankers also said they are waiting to learn results of the European Central Bank’s meeting, which starts next Thursday. ECB chief Mario Draghi is expected to cut rates to counter low inflation and weak lending in the 18-country eurozone.

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