Asian bonds rose marginally on Wednesday tracking Wall Street's gains but strong oil prices capped the rally amid inflation fears and concerns more monetary tightening was on its way around the region.
Overnight, US stocks rallied on stronger-than-expected June sales from embattled automaker GM and after a report by the Institute for Supply Management showed US manufacturing expanded in June for the first time in five months. In Asia, the iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, moved in by 6-7 basis points (bps) to 553/558 bps. The investment-grade index tightened by 3 bps to 153/155 bps.
"We are better than yesterday. New York staged a rally on the back of equity markets and we are tighter from Asia close," said a Hong Kong based trader. Credit default swaps (CDS) - insurance-like contracts that protect against defaults and restructuring - on some investment grade sovereigns which had suffered in recent sell-off, were active.
Korea's 5-year CDS tightened to 105 bps from 107 bps and China's 5-year contract tightened by a similar margin to 73/75 bps. But traders and analysts said higher oil prices would continue to undermine market sentiment and Wednesday's recovery was only on account of technical factors.
"I don't think one data point can make a difference given that oil is so high," said Dilip Shahani, HSBC credit analyst referring to the US ISM data. Bonds from Philippines, an active regional issuer, rose but traders said the gain resulted from investors closing short positions.
The country's 2031 bonds were quoted at 104.375/104.625 cents to a dollar and its 2032 bonds were at 91.875/92.125, both up by half a point. Its 5-year CDS moved in to 267/270 bps from New York's level of 275. Meanwhile, issuers are tip toeing back into the market despite bleak investor sentiment.
Singapore's microchip packaging firm STATS ChipPAC, which concluded a week-long roadshow for a bond deal in the United States on Friday, could announce a benchmark-sized transaction next week, market sources said. Philippine conglomerate SM Investments Corp is also likely to launch roadshows for a bond offering next week.