March 20, 2012 / 9:18 AM / 5 years ago

ASIA CREDIT CLOSE: Asian credit skittish against troubling Treasury backdrop

SINGAPORE, March 20 (IFR) - Asian credit markets have failed to convince over the course of today as players eye nervously a deteriorating Treasury market backdrop. And in the face of falling Treasury prices, the only means to make something out of compressing spreads is to hedge portfolios en masse.

More worryingly for those with high-yield exposure is the failure of that asset class to tighten in spread terms and as a result there is a large rotation trade happening into high-grade paper from low-grade.

As a measure of the less than pristine market shape, the new series 17 IG index is a hefty 8bp wider on the day, with short sellers far more willing to take exposure after the roll rather than risk getting squeezed on the old 16s.

A key barometer for high-yield which was described by a regional syndicate head as a "watershed moment" was last week's deal for Agile, with the paper initially rallying up then proceeding to have a price collapse in lock-step with Treasuries.

But Agile's collapse from a 99 handle to its last 97.5 print has placed question marks over the viability of the China property primary space, and the pipeline is again in jeopardy.

Again, in a clear demonstration of the property complex's shakiness, the new KWG are down at 97.5 from a 99.10 reoffer. Meanwhile on the day the sector bellwether Cogard 2018s are off a half at 99.5 bid.

With Indonesian property company Alam Sutera preparing a USD100 - USD150m Global tonight there are hopes that a print will put some pep back in the Asia high-yield property complex.

Still, with the company eyeing an 11% coupon (pushed up from initial 10% thoughts on the back of the challenging market backdrop) and Single B China industrials such as the Texhong and Winsway 2016s in the 12.5% offered area you would have to wonder if investors will see value in the Indonesian developer's new deal.

Broadly speaking, high-grade is around 3bp-5bp wider, with a few notable exceptions. The real money bid is still seeing value in the offshore India curve, with the regional syndicate head noting that the country's corporate and bank paper looks cheap versus where a theoretical India sovereign offshore benchmark would trade.

He suggested that whereas the Malaysia, Korea and Indonesia offshore complex trades on average 200bp north of the respective sovereign curves, India's trades around 300bp north of a theoretical Republic of India.

Given this perceived value it's not surprising that the ICICI Bank 2016s are continuing their recent run and are an impressive 10bp tighter on the day, albeit in the context of a 40bp bid/offer of Treasuries plus 380bp/340bp. Meanwhile the Reliance 2022s are 5bp tighter at plus 315bp bid, while the NTPC 2021s are unchanged at plus 310bp.

jonathan.rogers@thomsonreuters.com

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