HONG KONG, Sept 17 (IFR) - Asian credit spreads tightened to 14-month lows as investors continued their hunt for yields but a sell-off in long-dated US Treasuries triggered some caution particularly in bonds of Philippines and Indonesia.
The iTraxx investment grade index series 17 was at 113/115bp, some 1-2 basis points tighter than Friday's levels and new issues were the big outperformers today, with the huge oversubscriptions a harbinger of how much money has been flowing into emerging market debt.
"High yield sovereigns are coming off at the long end and the high grade spreads are tightening in," said a Singapore based trader speaking about the impact on Asian credit.
Nan Fung's USD300m 10-year bonds traded as tight as 255bp over US Treasuries from their re-offer level of 280bp after its books totaled USD5.8bn. Capitaland on the other hand saw its bonds trade as tight as 211bp after pricing at 225bp on the back of more than USD7bn in orders.
Besides the strong debut of Capitaland and Nan Fung, the other talking point in the market was the US Treasuries weakness.
Long dated bonds from Philippines and Indonesia are down by 1 point and 1.25-1.5 points respectively after US 30-year Treasuries saw their worst week in over three years.
Market benchmarks Philippines 2021s are at 110.125-110.625 and the 2037s are at 117.250-117.750. Indonesia 2022s are at 104.000-104.750 and the 2042s are at 112.750-113.750.
But the rally's loss of momentum was likely to be brief as the consensus among traders is that US Treasuries were oversold with the 30-year bond tumbling some USD3 in price terms, sending yields up 27bp on the week, the biggest climb since August 2009. The 10-year yields weekly rise was about 20bp.
The market is a better buyer of Indian paper but there are no street offers. For example the new ICICI bonds are bid at 335bp but there are no offers. One dealer said some offers were as much as 40bp away as "the street does not want to be short, everyone is on the same side of the trade."
Last week, India re-ignited its reforms agenda by opening its supermarkets to foreign direct investment and allowing foreign airlines to invest in local carriers and by raising the price of heavily subsidised diesel.
The government also approved stake sales in four state-run companies as part of its broader push to revive a reform agenda.
The high yield sector has started to gap, not just on account of favourable technicals but also likely support for the real economy.
High yield bond funds saw inflows of USD1.96bn in the week to September 12, up from USD1.61bn a week earlier. That asset class has attracted USD7bn in the past four weeks. This comes in the backdrop of thin supplies.
"If you think central banks are going to maintain status quo, money will feed its way into real assets and buyers of coal, steel and materials will be supported," said a high yield bond trader. "The doom and gloom scenario is reversed for now."
Chinese property bonds rose by USD0.5-USD1.5 and Indonesian coal miner Bumi jumping by as much as 3 points in price to trade around 91.Bumi's bond prices jumped tracking its surge in stock prices as investor concerns over its tight liquidity began to calm somewhat. Its share prices rose as much as 8.3%.
Fortescue is another highly leveraged commodity-related credit that is stabilising after a recent sell-off.
"These are all highly levered and so they are very vulnerable to drops in the underlying prices of raw materials. Fortescue is getting close to break even as it does that its coverage ratios get smashed," said the high yield trader.
Newly sold sub-investment grade paper remained solid with Kaisa trading as high as 102.50 and Road King is at 101.25/102, after pricing at par.