July 9, 2014 / 9:32 AM / 3 years ago

ASIA CREDIT CLOSE: Indonesia rally picks up steam

SINGAPORE, July 9 (IFR) - Jakarta governor Joko “Jokowi” Widodo’s party’s victory claim in Indonesia’s presidential elections fueled the third day of a rally that has seen the sovereign’s 30-year bonds gain more than USD5, or about 4.5%, since Monday.

Traders were busy clearing buy orders for Indonesia. Every desk was being called by investors covering shorts and adding exposure.

Preliminary elections results from earlier today showed reform-minded Jokowi ahead of rival Prabowo Subianto by five percentage points, prompting his Indonesian Democratic Party to claim victory.

The move boosted the rupiah in foreign exchange markets and pushed Indonesia’s 2044 bonds up by USD1.5. The bonds were last quoted at 118.00, up from 113.00 at the start of the week.

“I think a lot of people were short so there is some short-covering there,” a trader said. Another said the price jump reflected a change in sentiment towards the election outcome.

Widodo had a wide lead in the run-up to the election, but in the past two weeks, Prabowo caught up. Late last week local pollsters were giving the Jakarta governor a lead that was within the statistical margin of error.

That prompted investors to hedge their bets on his win. Those bets now are being reversed, traders said.

Elsewhere in Asian credit, spreads widened marginally as a result of a further rally in US Treasury rates. The yield on the 10-year US Treasury closed 5bp lower yesterday to 2.57%, having rallied 9bp since last Thursday.

Asian corporate bonds lagged and most investment-grade benchmarks were closing the session 1bp to 2bp wider.

The Asia ex-Japan IG iTraxx index also was ending 1bp wider; it was last quoted at 103bp mid-market.

There was a surprising amount of liquidity in the markets and desks that were understaffed as traders took summer holidays were hard-pressed to meet client requests. On top of the frantic trading in Indonesian bonds, investors remained active on the new issue front.

ONGC Videsh’s new dollar 5-year and 10-year bonds were finding support from dealers, but traders said a number of accounts were flipping the bonds.

The 5-year was ending the session unchanged at a yield spread of 167bp/165bp, while the 10-year was also unmoved at a spread of 209bp/207bp.

Christopher.Langner@thomsonreuters.com

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