Asian debt spreads eased to their narrowest in nearly three months on Tuesday as strong European bank earnings and upbeat US manufacturing data spurred investors to move back into riskier assets. The Asia ex-Japan iTraxx investment-grade index narrowed 6 basis points (bps) from Monday's close to 108 bps, traders said, a level not seen since mid-May, also helped by gains in stock markets.
The investment-grade Markit iTraxx Europe index was steady at 99 bps, the lowest since mid-May. "Strong earnings and US data are the main drivers for bond spreads this morning," a Singapore-based trader said. European lenders BNP Paribas SA and HSBC Holdings Plc posted forecast-beating results, while the US manufacturing sector expanded for a 12th straight month in July, tempering concerns about a slackening in its economic recovery.
"There is money to be put to work. Funds kept a higher-than-normal cash balance over the past few months because they were worried about redemptions, but the redemptions did not happen," the trader from Singapore added. Asian shares also edged up, reflecting the market's improving appetite for risk. The MSCI Asia ex-Japan rose as much as 0.6 percent to its highest since early May.
With tighter spreads and continued high demand for high-yielding Asian credit, Union Bank of India and Singapore's PSA International planned to issue bonds as early as Tuesday, sources familiar with the two deals said. The state-run Indian lender planned a benchmark-sized issue while PSA planned to sell $500 million of debt, the sources said. Recently issued bonds from Singapore-listed Hong Kong commodities company Noble Group Ltd extended gains.
Its five-year bond traded half a point higher at 101.25/101.50 cents on the dollar, while its 10-year debt was up close to a point at 102.50 cents on the dollar, traders said. Another Singaporean company, STATS ChipPAC Ltd, was expected to price its planned $600 million, five-year bond this week, traders said.
Companies are rushing to raise funds from the global bond market ahead of an expected lull this month, when most investors are away for the summer holiday. Bonds denominated in US dollars, euros and yen issued by companies and sovereigns in Asia outside of Japan reached $44.4 billion in January-July, up 32 percent from a year earlier, according to Thomson Reuters data.
On the sovereign front, Philippine dollar bonds extended gains, spurred by the government's plan to issue global peso bonds, easing worries the country would issue more dollar debt overseas, traders said. The country's debt due in 2020 rose a point to 117.75 cents on the dollar, the highest since the debt was issued in January this year, a local trader said.
Its 5-year credit default swaps (CDS) narrowed 7 bps to 140, the trader said. The iTraxx SovX Asia Pacific index, which tracks the 5-year sovereign CDS of 10 countries in the region including the Philippines, tightened 6 bps to 106, traders said.
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