Asia debt spreads - on course for their best quarter in a year - held steady on Wednesday and looks set to tighten further on expectations of US measures to support the economy. The Asia ex-Japan iTraxx investment-grade index was steady at 119 basis points (bps) on Wednesday.
-- Hong Kong Land, Hyundai Motor to sell bonds this week
The index has fallen, indicating a narrowing of spreads, by 24 bps since the end of June so is poised for its best three-month performance since July-September 2009. Asian stocks are also set to post their best quarterly showing in a year, with the MSCI index of Asian shares outside Japan rising 11.4 percent so far this quarter.
"Monetary policy around the world will remain loose and we are even talking about another round of quantitative easing in the United States. The environment remains quite good for emerging market and Asian credits," said Thomas Kwan, director of offshore investments in ICBC Credit Suisse Asset Management.
"Overall, funds will continue to flow into this asset class. If you look at Asian bond market, the credit environment is much better than in the US and Europe. People looking for safety and stability will come to Asia," the Beijing-based Kwan said. Hong Kong Land Co plans to price a benchmark-sized, 15-year bond as early as Wednesday, a source close to the deal said, adding to a long list of potential issuers such as Hyundai Motor, POSCO, and China Medical Technology.
The busy pipeline will weigh on spreads in the short-term, traders said. Sovereign dollar bonds from the Philippines and Indonesia, two of the most active overseas debt sellers in the region, outperformed the broader Asian market. Philippine dollar bonds due 2020 rose half a point to 119.50/119.75 cents on the dollar, while Indonesia's 2020 bond firmed to 115.25/115.375 cents on the dollar from 114.375/114.875, traders said.
Philippine debt has posted a 10.4 percent rise so far this quarter and Indonesian credits are up 9.8 percent, according to the J.P. Morgan EMBI global index, which tracks dollar bonds issued by emerging market governments. The two sovereigns have outpaced the 8.6 percent gain in the broader Asian index.
Korea Electric Power Corp's (KEPCO) bond extended its gain after debuting on Tuesday at 177 bps over Treasuries against an issue price of 180 bps. The 5-year debt tightened by 4 bps on Wednesday to 173 bps over. Another new issue, Sri Lanka's 10-year bond traded at 100.80 cents on the dollar after a Tuesday debut at 101.25. It was issued at par. Both issues were oversubscribed, indicating strong demand for emerging market debt. The iTraxx SovX Asia Pacific index, which tracks the 5-year sovereign credit default swaps of 10 countries in the region, was steady at 112 bps, traders said. The investment-grade Markit iTraxx Europe index was traded at 114 bps from 114.50 in London on Tuesday.