June 20, 2013 / 9:28 AM / 4 years ago

ASIA CREDIT CLOSE: Full blown panic as prices gap down

SINGAPORE, June 20 (IFR) - Ben Bernanke's statement after the FOMC provided no respite to the panic over a tapering of QE in the US.

Adding to the inauspicious mix has been the fear of a liquidity crisis in China's interbank market, where rates have spiked to an all-time 8% high with no relief seen in the form of PBoC intervention. The Asia iTraxx IG index has gapped out 20bp to 157bp/162bp and the 10-year Treasury is out 20bp.

The market has become deeply illiquid as traders, fearing getting bids, hit in size, and flow is light, with prices marked down in gaps. Investment-grade cash has been hit hard, with the likes of the CNOOC 23s out 20bp to Treasuries plus 205bp bid, the Bank of China 23s out a whopping 30bp to plus 340bp bid and the KDB 22s out 20bp at plus 180bp bid.

A measure of the apparent lack of a floor to cash prices has been the performance of the Pertamina 2043s, which sank from 87 bid this morning to 82 after lunch.

CDS has been active, with single name buying protection reemerging and reinvigorating a sector that had threatened to become a backwater. The cost of IG protection has gapped out about 15bp-25bp. China is out 22bp at 125bp-135bp and Korea out 16bp at 90bp-100bp.

With cash having been marked down so deeply, the likelihood of value hunting is high, with private banks said to be looking to dip their toes in again, but, for the moment, the mood is one of rather shell-shocked panic.

jonathan.rogers@thomsonreuters.com

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