September 4, 2017 / 8:32 AM / 10 months ago

ASIA CREDIT CLOSE: Korean credit widens after Pyongyang tests H-bomb

SINGAPORE, Sept 4 (IFR) - Primary offerings paused today, as tensions between the US and North Korea heated up again, sending Korean credit wider but having relatively little impact on the rest of Asia.

North Korea said on Sunday it had tested a hydrogen bomb for a long-range missile, and US Defense Secretary James Mattis warned of a “massive military response” if North Korea threatened the US or its allies.

South Korea’s military today responded by holding a missile drill, while the heads of state of China and Russia, meeting in Xiamen for a BRICS summit, both said they would “appropriately deal” with North Korea.

US President Donald Trump also said in a tweet that the US was considering stopping all trade with any countries doing business with North Korea.

China is North Korea’s largest trading partner and was also the third largest goods export market for the US in 2016, according to US government figures.

“We haven’t seen Treasuries move much as of now,” said a bond banker. “Korean CDS and cash bonds are a bit wider compared to the broader market, but there has not been much impact on China. Investors have shrugged it off until the US reacts.”

US Treasuries were 1bp wider across the curve in trading this morning, but movements were limited, given that the US is away for the Labor Day holiday.

Korean sovereign 5-year CDS widened 3bp to 62.9bp/63.9bp this morning, and weakened by a further 1bp this afternoon.

“It’s nothing really,” said a credit trader. “There’s no panic.” Today’s widening simply took Korean CDS levels back to where they were three weeks ago.

CDS for Hyundai Motor widened 11bp today, to a wide bid-ask spread of 74bp/84bp. The broader Asia ex-Japan iTraxx CDS index was flat today at 76.8bp/77.6bp.

The sovereign’s 2027 bonds opened 4bp wider in Treasury spread terms, before settling back to Treasuries plus 74bp, around 2bp wider on the day. Cheung Kong Infrastructure’s perpetual bonds gained a quarter of a point to a cash price of 100.5. India’s Canara Bank saw its 2022 dollar bonds tighten 5bp to Treasuries plus 140bp. China Great Wall Asset Management’s 2022s were 1bp wider at Treasuries plus 146bp, while its 10-year notes widened 2bp to plus 187bp.

Reporting by Daniel Stanton; Editing by Vincent Baby

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