Asian spreads widened on Friday, taking further away from eight-week lows, as investor worries about Greece triggered profit-taking. Convern about stretched valuations and excess supplies also pressured prices and caused spreads to inch wider. "Many global investors want to put more money in Asia and given that markets are not deep enough here valuations can get stretched," said a fund manager in Hong Kong.
The Asia ex-Japan iTraxx investment-grade index moved out to 93/95 basis points from Thursday's 91/92 basis points. It struck an eight-week low of around 90 bps earlier this week over hopes that Greece's debt crisis was easing. The Thomson Reuters Index of Asia emerging credit was quoted at 179.36 on a simple average basis and at 112.51 on a weighted average basis.
Greece, battling with crippling debts, has said it is counting on European Union leaders to approve a mechanism to help it at next week's meeting. But some countries - especially Germany, the EU's top economy and biggest paymaster - are wary of making promises. Valuations and a swelling issuance pipeline is also causing some concern in Asia. Bonds from Philippines, which struck life highs this week, suffered more profit taking.
The 2034 bonds were trading at 98.75/99.25 cents on the dollar down from 99.125/99.375 on Thursday. The bonds, sold at 99.382 cents in October, struck their highest level of 100 in New York trade on Wednesday. Credit default swaps also moved out slightly to 148/153 bps.
Investors are also awaiting new supplies from borrowers in Asia who are looking for borrowing costs to fall. "Bond markets are in great shape and maybe issuers are taking the view that a little bit more can be squeezed out," said Mark Adams, BNP Paribas' head of Asia debt capital markets. "There is still quite a bit of supply coming out of Korea and i think thats the near term where most action will be."
The market expects new debt offerings from issuers like Indian lenders ICICI Bank, Bank of Baroda and Bank of Baroda and a clutch of South Korean and Indonesian borrowers. Bank debt was steady as investors continued to see value. Indian lender ICICI Bank's perpetual bonds issued at a price of 99.324 are trading at around 93 for a yield of around 8.5 percent. These bonds carry a coupon of 7.25 percent. Shinhan Bank's 2036 bonds were trading at around 97 cents for a yield of 7.5 percent.