Asian dollar bonds outperformed regional stocks in the first quarter, as investors preferred the high-yield asset on views rising policy rates and China's moves to tighten liquidity will slow the equities market. Asian spreads may tighten further, as lower rates in the United States and Europe will spur demand for bonds in Asia, traders said.
Meanwhile, concerns about higher valuations and rate rises in the region will hound equities, they added. "Obviously, the (debt) situation in Western Europe could flare up," said Tim Condon, Singapore-based Asian research head at ING Bank.
"(But) I don't think they'll derail the climb," he said, referring to the outlook on Asian credits. The benchmark J.P. Morgan EMBI+ credit index for Asia gained 2.8 percent in the first quarter, versus a roughly 2 percent rise in MSCI Asia-Pacific ex-Japan, with one trading day left before the quarter-end.
"People are more cautious given the potential tightening measures in China, India and other Asian markets. So in terms of valuation, people think the equities market is somewhat stretched," said Arthur Lau, portfolio manager at JF Asset Management in Hong Kong. Newly-issued bonds from South Korea's Woori Bank and India's Bank of Baroda rose in their Asian debuts on Tuesday, while the overall market was firm.
Woori Bank sold $500 million of dollar bonds due in 2015 at $99.38 cents on the dollar, yielding 205 basis points (bps) over US Treasuries, the midpoint of its final price guidance of between 200-210. The bonds were traded at 200 bps this morning. The issue received $1.7 billion in total orders, a source close to the deal said. Of the total sales, investors in Asia accounted for 51 percent, Europe 29 percent and US 20 percent.
By investor type, banks bought 28 percent, asset managers 26 percent, fund managers 24 percent and the rest to retail and institutional investors. India's Bank of Baroda sold $350 million of dollar debt due in 2015 at 230 bps over US Treasuries, at the lower-end of its final guidance of as much as 230. The bonds were traded at 222 bps in morning session.
The issue got $1.4 billion in orders, a source said. Of the total bonds sold, 62 percent with to investors in Asia, 30 percent to Europe and the rest to those outside of the US By investor type, fund managers bought 52 percent, banks, 24 percent and the rest to retail and other investors.
The Asia ex-Japan iTraxx investment-grade index was quoted at 95/96 bps, versus 96/98 on Monday. The Thomson Reuters Index of Asia emerging credit, was quoted at 118.65 on a simple average basis and at 112.53 on a weighted average basis.
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