SINGAPORE, Nov 8 (IFR) - Asian bond investors were sellers today, but resisted the urge to fully replicate the strong sell-off in the United States. The Asia iTraxx IG series 18 ended the day about 4bp wider quoted at 118bp, but given how bad the sell-off was in the US, it could have been worse.
“With the Dow dropping almost 2.5% in the US, you would think it should have been much worse,” said a trader in Singapore. The DJ Industrials ended the day yesterday down 2.36% and the yield on the 10-year US Treasuries was almost 11bp tighter in the day.
“Six months ago a sell-off like that would have seen the index widen 8bp,” the trader added. The mood in the US session, in fact, had been of clear flight to safety as accounts sold riskier assets amid fears that President Obama will have a hard time averting the fiscal cliff given the divided parliament.
Democrats won majority in the US Senate, but Republicans still dominate the House and are likely to stall any moves to stop automatic budget cuts from being implemented in 2013.
If corporate credits in the US were badly hit by the sell-off, it was not so bad in Asia. The sole underperformer, though was Indonesia. The 2022s ended the day 75ct weaker in price terms at 116.25/116.50 while the 2022s were 50ct lower at 117.00-118.00.
“Indonesia has been the first one to sell-off lately,” noted another investment-grade trader. PLN 2042s also suffered from the rout and were USD1 lower by the close, quoted at 102.25/102.75.
Part of the reason for the steep drop in PLN’s 30-year, though, was because investors were also buying steepening trades as they sold-off risk.
Interestingly, the move was the inverse of what was seen in Bunds and Treasuries during the Asian session, where the trend was bull-flattening.
The 30-year US Treasury continued to tighten while the 10-year widened a couple of basis points during Asian hours. But if investors seem more keen on the long-end for ultra-safe bonds, it is not so in Asian corporates and sovereigns.
In fact, since the beginning of October the spread between the few two-tranche 10- and 30-year bonds from Asian issuers has increased and has gone from nil to 25bp-30bp lately. One good example is CNOOC, which priced its 2022s and 2042s with the same spread early this year. The 30-year now trades with a spread as much as 10bp wide to the 2022.
The sole outperformer was China Overseas Land’s new long-dated bonds. The USD300m 30-year closed the day at 250bp/245bp after having priced it at 255bp.
The USD700m 10-year, however, widened to 238bp/236bp from a reoffer spread of 235bp.
High-yield also took a hit, with most bonds down by 50ct to USD1 in price terms in the session. The worst performer was again Soho China, which saw its five-year bonds print as low as 97.00 with the 10-year around the same level.
Those bonds priced last week at par. China SCE bonds, which had rallied 50ct yesterday, were right around reoffer again near par.