ASIA CREDIT CLOSE: China property continues to outperform

Tue Jun 26, 2012 2:57pm IST

SINGAPORE, June 26 (IFR) - Asia's credit markets endured another quiet day, but with the price action again resilient in the face of poor US equity market price action overnight as deep skepticism towards the upcoming European summit dented sentiment.

The iTraxx series 17 is ending 2bp wider at 185bp/187bp on thin two-way flow. Spanish 10-year bonds are holding in decently at 6.68% at the open and help explain the solid end to the day's trading.

A move to put PRC coal producer Hidili on negative watch by S&P had already been factored in to the price and the due 2015 bonds are ending unchanged at 78/80.

The company faces the refinancing of a put in January totaling Rmb1.8bn and deteriorating cashflows, highlighting the perceived refinancing risk in the China industrial and property sectors.

The rout on Evergrande's offshore curve prompted by a negative research report from Citron Research has again incrementally reversed, with the paper up at 94/95 today, or five points above the low hit last Thursday when the report came out.

This underscores the apparent attractiveness of China property paper, with the Cogard 2018s up at a 100.5 offered side, or a half on the day and the Agile 2017s at a 99.5 offer, or approaching the optically significant par level.

Contrary to the perceived notion that the China property space should trade at a steep discount to the overall market, the market is bidding up the sector on the view that the worst is over for sales and that the local banks will step into the breach for refinancing. China five-year CDS is closing out 3bp wider at 131bp/133bp.

The recently issued IOI 2022s have notably underperformed the broader market, with the paper now bid 6bp north of its Treasuries plus 280bp reoffer.

By contrast the new KEB 2017s are a full 15bp inside reoffer at a plus 240bp bid and the Hang Lung 2022 in at plus 326bp versus a plus 335bp reoffer, while the First Pacific 2019s are up at a 100.75, or 0.75 above reoffer and unchanged on the day.

jonathan.rogers@thomsonreuters.com

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