Asian credit spreads compressed and new issues rallied on the back of positive global risk sentiment but Chinese high yield industrial bonds underperformed following fraud allegations about Winsway Coking Coal's books. "There is some real money buying. That along with the positive data overnight and the successful Spanish and French debt auctions caused a rally in US and European equities and a sell-off in treasuries.
This has resulted in a natural spread compression with the IG," said a Singapore-based credit trader at a European bank. Spreads on Asia ex-Japan iTraxx investment grade series 16 index are quoted 3bp-4bp tighter at 191bp/194bp. Newly sold bonds from Shinhan are trading at 339bp/335bp after pricing at 365bp and compared with overnight levels of 352bp/350bp. KT Corp was at 298bp/293bp, down from Thursday's 305bp. It was priced at 310bp over US treasuries.
Regional equities are trading firm with Korea's Kospi index trading up 0.8%, Australia's S&P/ASX200 index 0.15% higher and Japan's Nikkei average up 1.04%. The MSCI index of Asia-Pacific shares outside Japan is up 0.19%. Shares in China's Winsway Coking Coal Holdings were down over 5% even after the company dismissed allegations of financial fraud. Winsway 8.5% 2016 bond fell to 76.5/78.5 cents on the dollar from the previous 84. The yield is up to 16% from 13.6%.
"When there is news like that, people sell first and ask questions later. Most people are comfortable but some are taking a very cautious approach and are happy to lose 5 points now than more later," said a Hong Kong-based high yield trader. "But I don't think it is another Sino-Forest, you need a lot of skills for that. I am sure there are companies with far worse corporate governance track records," he said.
Other weak industrial names also eased in sympathy. Fufeng 2016 bonds are bid down to 83 from 85.25 and Hidili 2015 is down to 79. "Caution and uncertainty look to be the bywords for at least the early part of 2012, and while Asian corporates may make preparations for the reopening of the high yield bond markets, it will likely take a higher speculative-grade rated, existing issuer to break the deadlock and open the floodgates for smaller and first-time names to the market," said Laura Acres, a Moody's Vice President and Senior Credit Officer.
Indonesian bonds continue their stellar performance across the curve following its upgrade to investment grade by two rating agencies within a gap of a month. "It is now eligible for inclusion in the Barclays Capital Global Aggregate Index. This is likely to create passive buying worth USD200-400m," Barclays Capital said in a note while recommending buying liquid, long-dated bonds.