ASIA CREDIT CLOSE: HY, IG rally, Olam and CFG under pressure

Thu Nov 29, 2012 2:49pm IST

SINGAPORE, Nov 29 (IFR) - Investment-grade and high-yield credit rallied in tandem today as Asia rode the optimistic wave started in the US overnight, where positive comments by a key Republican lawmaker about averting the fiscal cliff brought New York stock markets back to black toward the end of the session.

The giddiness in the West and the lack of negative headlines on this side of the world buoyed the Hang Seng Index which saw a 1% gain today, its first this week.

Similar forces squeezed spreads for investment-grade credits. Cash bonds were seen tightening 2bp-3bp in the day, even as the yield on the 10-year US Treasury hardly moved since Wednesday. CDS was also tighter and the Asia iTraxx IG Series 18 index was about 2bp narrower by the time London investors were walking in, quoted at 112bp.

Most of the actual flow, however, was seen on the new bonds issued by Mongolia. The 2018s ended the session quoted at 101.00 mid-market after having priced at 99.996 overnight, while the 2022s were quoted at 101.50 having priced at par.

The USD500m shorter tranche saw USD6bn in demand and the USD1bn longer bond saw USD9bn in orders. This had some speculating that part of the buying in Asia was driven by underallocated institutional investors, even though some of the buy-side here complained that the final pricing was too tight.

High-yield was high on the agenda overall, with plenty of buying seen across the board. Retail investors were seen favouring Chinese property credits, especially after Moody's moved many of the bellwhethers in the sector to stable from negative. Some of the benchmarks were up by as much as USD1.

This applied to Gemdale's recently issued bonds, which closed the session at 104.00-105.00 and to Evergrande, which ended at 108.00-109.00. Even beaten down Soho China got a boost from the sudden interest in the sector, with its 2017s ending the session some USD1 stronger in price terms at 98.00-99.00, while the 2022s closed at 97.00/98.00.

On the flip-side, retail investors unloaded some of their holdings of Olam bonds as the controversy with Muddy Waters drags on. The 2017 dollar-denominated bonds ended the session about USD1 weaker as a result of this selling, quoted at 95.00.

China Fishery's bonds also came under pressure after news that the Russian government could bar its parent Pacific Andes from procuring fish in the country. The bonds were already weighed down by the company's worse than expected earnings report earlier this month, and dropped some USD2 more last quoted with a very wide bid-ask spread of 78.00-82.00.

Christopher.Langner@thomsonreuters.com

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