Asian bond spreads tighten

Asian bond spreads tightened on Tuesday on improved risk appetite as regional stocks neared recent two-month peaks, but looming supply could check gains. The Asia ex-Japan iTraxx investment-grade index was quoted at 100/102 basis points (bps), 2 bps tighter than on Monday.
The Thomson Reuters Index of Asia emerging credit was quoted at 176.23 on a simple average basis and at 111.57 on a weighted average basis. In the sovereign sector, credit default swaps from Indonesia and Philippines were 2-3 bps tighter, but traders said valuations were stretched and any significant tightening from these levels would require a significant positive driver. Indonesia's 5-year CDS was quoted at 164/169 bps and the Philippine 5-year CDS was at 162/169 bps.
"Although investors continue to allocate cash to the Asian sovereign space - in particular to the Philippines and Indonesia - sovereign spreads are arguably rich at current levels," said a note from Standard Chartered Bank. "With the overall credit markets already pricing in a lot of good news, we see limited upside to current spread levels and recommend exposure to some of the quasi-sovereign and pure corporate names rather than to sovereign debt," it said.
It recommended switching to Indonesia's state-run power firm PT Perusahaan Listrik Negara (PLN) bonds due in 2020 from Indonesian sovereign bonds of the same maturity. PLN's bonds fetch an additional 140 bps of yield despite both bonds having the same BB rating.
Philippine bonds consolidated at lower levels with the bonds due in 2020 logging most of the trading volumes. The 2020 bonds were quoted at 107.375/107.625 cents on the dollar compared with Monday's 107.5/107.875. The bonds maturing in 2034 were traded at 98.125/98.50, down from 98.5/98.875.
The two bonds are the most liquid among the sovereign dollar bonds sold by Philippines and the yield gap between the two maturities has remained constant compared with the similar differentials in other emerging sovereign bonds which had increased, according to Barclays Capital.
The yield on the 2034 bonds, sold in October last year at 99.382, is around 6.5 percent, down from 7 percent at the beginning of February. Markets are now awaiting a flurry of new issues from borrowers across the region as corporations and banks take advantage of low spreads and funding costs. South Korea's fourth-biggest lender Hana Bank, a key unit of Hana Financial Group is holding a series of investor presentations in Asia, Europe and the United States from March 29-31. It is expected to be followed by a bond deal.