Asian bonds gave up some of their gains on Tuesday, pushing spreads near their highest in nearly two months as weaker equities and an expected string of new issues prompted investors to pocket recent gains. The Asia ex-Japan iTraxx investment-grade index widened 4 basis points (bps) from Monday's close to 135, traders said, hovering near the 136 bps posted on Friday, its highest since early July.
The spread is headed for its biggest monthly jump since May, when investors sold riskier assets on fears of a sovereign debt crisis in Europe. It also reversed a 24 bps decline posted in July, the first monthly drop in four months. Asian stocks were lower, led by Japanese shares, as a string of weak US data rekindled fears that the world's biggest economy was losing steam. The index of Asia Pacific ex-Japan stocks was down 1.2 percent at 0436 GMT.
Renhe Commercial Holdings debt due in 2015 fell to 98/99.50 cents on the dollar from 98.50/100, traders said, as the Chinese underground mall developer prepares to price its new bond on Thursday. A source close to the deal said Renhe plans to price its 5.5-year bond at around 13 percent. Traders said this will offer a yield pickup of as much as 40 bps versus Renhe's 2015 debt, helping attract investors to the new issue.
Some issuers from South Korea are also expected to sell debt in the coming sessions such as Korea Development Bank (KDB), Korea Electric Power Corp and Korea Hydro Nuclear Power, adding to the weak sentiment on Korean papers, traders said. Lower rates abroad and the need to diversify their funding sources are driving Asian firms to tap the global debt market.
"From the issuers' point of view, the funding conditions (overseas) have improved. The US rates, which serve as base rates for bond issues, are low," an official at a top South Korean bank involved in capital raising said. KDB may issue a benchmark-sized dollar bond and has hired banks to manage the deal, bank officials said. Korean issues were 3 to 5 bps wider over US Treasuries, with the actively-traded Korea Housing Finance Corp debt due in 2015 seen 5 bps wider over US Treasuries at 175, traders said. "Sovereigns and corporates in the region remain strong at a fundamental level and the second quarter growth in Asia has surprised on the upside," said Krishna Hegde, Asia credit strategist at Barclays Capital in Singapore. On the credit default swaps (CDS) front, the iTraxx SovX Asia Pacific index, which tracks the 5-year sovereign CDS of 10 countries in the region, widened 4 bps, traders said.