South Korea's NACF bond gained on its trading debut in Asia on Thursday, underpinned by strong investor demand, while the overall market weakened after downbeat economic outlook from the US Federal Reserve. The broad Asia ex-Japan iTraxx investment-grade index widened 2 basis points (bps) to 126/128, traders said, slightly wider from a one-week low reached in the previous session. Sovereign credit default swaps (CDS) also widened.
National Agricultural Co-operative Federation or NACF sold $500 million of bonds due in 2016 on Wednesday. The debt was traded at 266 bps over US Treasuries in the early session, versus its issue price of 268 bps above US Treasuries. The deal attracted $3 billion in orders, a source said. Investors from Asia bought 55 percent of total sales, while the rest were taken by the US and Europe.
Traders said there was strong demand for bonds due to their the investment grade status and the optimistic outlook for the South Korean economy. "Everybody is focused on bonds and new issues are doing well as the market put their cash to work. Most dealers are light on papers," a Singapore-based trader said. "Dealers are squared on their CDS positions, that's why most activity are on bonds."
Fed Chairman Ben Bernanke told the Senate Banking Committee on Wednesday that the outlook for the world's largest economy was "unusually uncertain" and that policymakers were ready to ease monetary policy to avert another recession. High yielding bonds rose, as yield-hungry investors chased sovereign debt from the Philippines and Indonesia, traders said.
Philippine bond due in 2020 was traded at 114/114.375 cents on the dollar versus 113.875/114.125 on Wednesday, traders from Manila said, supported by the country's large pool of dollar liquidity from remittances overseas. The latest data from the Philippine central bank showed that remittances from Filipinos working overseas hit a record $1.6 billion in July, bringing the total to $7.4 billion for the first seven months of 2010, up 6.6 percent from a year ago.
Indonesia's bond due in 2020 was traded a quarter point higher at 110 cents on the dollar, traders said. An expected string of new issues may cap gains on Asian bonds in the coming sessions, traders said. State Bank of India plans to price a 5-year dollar bond later in the day, a source close to the deal said. In the sovereign space, the iTraxx SovX Asia Pacific index, which tracks the five-year sovereign CDS of 10 countries in the region, widened 4 bps to 126, traders said. South Korea's 5-year CDS widened 2 bps to 111/115, as tension rose anew between the South and North Korea. The market was awaiting the results of the stress test on European banks, which will be out on Friday.