Asian bond spreads tightened to their lowest in more than 15 months on Wednesday as upbeat US data lured investors into the region's riskier assets such as newly issued debt from the Philippines' SM Investments Group. The Asia ex-Japan iTraxx investment-grade index narrowed by five basis points (bps) to 115/120 bps, traders said. The index is at its lowest since early June 2008, according to Thomson Reuters data.
"There is a bounce in riskier assets after a big jump in US retail sales. Overall sentiment is good and money is flowing again into the bond market," a Hong Kong-based trader said. Sales at US retailers rose in August at their fastest pace in 3-1/2 years, reassuring investors that Asia's top export market is recovering from severe recession.
US Federal Reserve Chairman Ben Bernanke's comment that the recession is "very likely over" further raised the market's risk appetite, traders said. Mall-to-banking group SM Investments sold $500 million of five-year bonds late on Tuesday at a yield of 6.0 percent, the lower end of its target. The issue size was raised from an initial plan of $300 million due to strong demand. The bond was trading at 100.125/100.25 cents on the dollar, up from its issue price of 100, Manila-based traders said.
"The SM Investments bond has a strong investor base in the Philippines," one trader said. "The company is a well-diversified group that has a stable revenue stream." The deal attracted $1.1 billion in orders, a market source said. Investors from the Philippines accounted for 65 percent of the debt sold, other Asian countries 29 percent, and Europe 6 percent.
By investor type, banks accounted for 46 percent of total purchases, private banks 42 percent, asset managers 10 percent and corporate and other investors 2 percent, the source said. The deal bodes well for other corporate issuers in the region, such as Indonesia's coal mining contractor PT Bukit Makmur Mandiri Utama (BUMA) which plans to sell global bonds and is holding a series of meetings with investors.
Indonesian sovereign bond prices rose, with the country's 11.625 percent bond due in 2019 traded at 140/141.50 cents on the dollar, its highest since the debt was issued in March, traders said. The debt was up from 138.50/139.50 on Tuesday and from its issue price of 99.276. The bond is now yielding around 6.1 percent, well down from 11.75 percent at the time of the sale in March. Elsewhere, South Korea's five-year CDS was 4 bps tighter at 116/120, traders said.