Bonds from state-owned Korea Hydro & Nuclear Power (KHNP) and Chinese developer Powerlong Real Estate Holdings Ltd gained on their Asian debut on Friday, reflecting strong demand for the region's credits. The broad market was firmer, driven by upbeat US jobs and trade data, which eased fears that Asia's top export market would slip into another recession. That encouraged investors to buy riskier credits.
Bonds gain, spreads tighten, outlook upbeat The Asia ex-Japan iTraxx investment-grade index tightened 2 basis points (bps) to 118/121 from Thursday's close, traders said. The index is on track to narrow for its second week. The investment-grade Markit iTraxx Europe index narrowed to 105.9 bps from 107.5 in London on Thursday.
"Spreads are constructive, the mood of the market is more upbeat, asset prices are higher." said Brayan Lai, credit analyst at Credit Agricole CIB. Latest data from global fund tracker EPFR showed emerging market bond funds continued to enjoy net inflows during the week ending September 8. The high-yield bond funds took in a net $700 million during the week, bringing year-to-date inflows to $10.6 billion.
Strong demand from investors lifted KHNP and Powerlong bonds on their first day of trading in Asia. KHNP sold $500 million of 5-year bonds on Thursday at 185 bps over US Treasuries, the tight end of price guidance of up to 195 bps. The debt was traded at 169/171 bps above US Treasuries on Friday, traders said.
The deal drew more than $5 billion in orders, a source said. US investors took 45 percent of total sales, Europe 21 percent and Asia 34 percent. Fund managers bought 69 percent of the total debt sold, banks 17 percent, insurers and others took the rest. Standard & Poor's, which rated the bond A, five steps below its top rating, noted KHNP was the only nuclear power plant operator in Korea. Nuclear power generation accounts for 35 percent of the country's total electric power supply.
Meanwhile, Powerlong's 5-year bond was traded at 101 cents on the dollar, versus its issue price of par, traders said. Powerlong sold $200 million of 5-year debt on Thursday at 13.75 percent, the lower end of its target of up to 14 percent. The sale attracted $450 million in orders, a source said. Investors from Asia accounted for 64 percent of sales, Europe 31 percent and the United States accounted for 5 percent.
Powerlong's deal surprised the market because it was not a well-known name in the Chinese property sector and the debt offered a lower yield against peers such as Kaisa Group debt due in 2015, which yielded 13.8 percent. The iTraxx SovX Asia Pacific index, which tracks the 5-year sovereign credit default swaps of 10 countries in the region, narrowed 2 bps, traders said.