Asian credits rallied on Friday after the world's biggest economy pulled out of recession which encouraged risk takers to pour money into Asian bonds, currencies and stocks. The United States, the destination for a large portion of Asia's exports, economy had registered 3.5 percent annualised growth in the third quarter, boosting prospects of more demand.
But still Asian bonds issued in G3 currencies are set to end the month with marginal losses reversing some of September's rise as a hefty new issue pipeline begins to test investor nerves. The Asia ex-Japan iTraxx investment-grade index tightened by 6 basis points to 106/110. It is slightly higher than September's close of around 105 and higher than the low of 95 bps struck mid-October.
Newly sold bonds showed divergent trends with the higher grade issues showing some tightening in their spreads while the junk rated bonds traded slightly weaker, an apparent flight to relatively safer credits. Bank of East Asia which sold $500 million hybrid tier-I bonds at par saw its bonds trade higher at 101 cents on the dollar, while bonds from South Korea's Hyundai Capital Services tightened to 354 bps over US Treasuries.
Hyundai sold 5-1/2 year dollar bonds at a spread of 369.4 bps over on Treasuries. "Its been a bumpy month given the stock market volatility and the new issue pipeline," said a trader in Singapore. "Any rally from here and probably people will be looking to get out. It is the year end effect and most people have made money this year."
The primary market has been busy this month - borrowers were encouraged to implement expansion plans as an economic recovery took hold and were also attracted to raising debt for funding these projects in a low interest environment. Issues of bonds denominated in dollar, euro and yen have raised about $8.5 billion this month, compared with $47 billion raised in the first nine months of the year, averaging a shade over $5 billion each month.
Jiffriy Chandra, CIO for credit at Income Partners Asset management, said bonds from those sectors which are seeing new supplies will be susceptible to a correction as repricing takes place with borrowers leaving some gains on the table for investors.
Indonesia's PT Perusahaan Listrik Negara (PLN) plans to sell benchmark-sized 10-year bonds at a yield of around 8 percent. That hurt the prices of its existing 2019 bonds which were sold in August. The bond yields rose by 50 basis points from the earlier 7.3 percent. Also in the pipeline is a potential offering from Chinese property developer Agile Property which is conducting investor presentations.