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ASIA CREDIT CLOSE:Spreads tight, mood upbeat before NFP

Friday, 5 Oct 2012 | 6:12 AM ET

HONG KONG, Oct 5 (IFR) - Asian credit spreads moved in further on Friday boosted by inflows into riskier assets and as sentiment remained upbeat ahead of the crucial US jobs data.

The iTraxx Asia ex-Japan investment grade index series 18 tightened by 1-2bp to 128/131bp after the European Central Bank provided further assurance about its bond buying programme. Excitement about the ECB comments overpowered the disappointment generated by the lack of fresh easing measures by the Bank of Japan, which completed its monetary policy meeting today.

Emerging market fixed income funds registered another week of substantial inflows, data from EPFR showed. That group received USD1.05bn in the week to October 3, just a slight drop from the previous week's USD1.13bn. It was the fourth straight week that has seen over a billion of new investments.

That is supporting the secondary market performances of newly sold bonds despite the primary market volumes hitting a record USD106bn with the fourth quarter still to play out.

"I see IG spreads continuing to grind tighter even though they have already come a long way, however in HY it will be much more idiosyncratic," said Fidelity fund manager Bryan Collins but he warned - "In the short term, supply indigestion could be a potential risk for IG."

That could be applicable in the case of bonds from India as the recent outperformance could attract more borrowers.

Newly issued IRFC 2017s tightened to 260/255bp over US Treasuries and are now trading tighter than EXIM India's 2017s which are at 260bp, despite the latter's EMBI inclusion.

"IRFC is the closest proxy to sovereign with 100% ownership and 100% credit exposure to the Indian government and hence it should be tighter than Exim," said one Hong Kong based DCM banker not involved in either deals.

IRFC was sold at 280bp and EXIM was priced at 355bp back in August, when there were jitters about India's sovereign rating and slowing growth.

But since then a series of measures announced by the government to attract investments into Asia's third biggest economy, including a cut in withholding tax, have improved investor perception.

Still DCM bankers say that given the economic backdrop issuers were unlikely to rush to the capital markets.

Ronan Mccullough, managing director at Morgan Stanley said he was "not particularly optimistic that we'll see strong supply; bank liquidity is good, the slowdown means companies are more cautious about locking in long-term debt."

Investors are, however, pricing in supplies of Chinese oil giant CNOOC. Its 2022s are trading at 148/138bp, underperforming its peers. Adding to expectations of additional issuance by the company, Canada's main opposition party has demanded a veto on CNOOC's USD15.1bn bid for Nexen, although the government has given no indication it will bow to this demand.

CNOOC bonds now trade weaker than the 10-year bonds from other Chinese oil giants CNPC and Sinopec, while the relative value versus COSL has also declined.

COSL is now trading just 18bp wider than CNOOC, compared with the gap of about 30bp last month.

Bangkok Bank bonds also recovered after overnight weakness on talk there could be more supply from Thailand's banking sector.

Li & Fung's bonds are trading 5bp weaker amid chatter that the global supplier of apparel is in advanced talks to buy Synergies Worldwide, a New York-based supplier. Its 2017s are trading at 220/200bp over the 5-year US Treasuries while the 2020s are trading at the same spread over the US 10-year Treasuries.

ANZ strategist Owen Gallimore said the bonds are "rich given the leveraged cyclical exposure to China and the debatable business model as large buyers increasingly bypass Li & Fung and increasingly debt-funded acquisitions fail to deliver".

In the high yield sector the quality names continue to be bid up with practically no supplies on the horizon. Sunac China Holdings is on the road with a dollar bond which is rated B+ by S&P.

Bonds in the BB-category like Agile, Country Garden and Longfor are all higher by around half a point with Agile 2017s at 106.5/107, Country Garden 2018s at 111.5/112.5 and Longfor 2016 at 107/108.

Indonesian coal miner Bumi continues to recover amid growing hopes that the debt-laden company would be able to dispose off some of its assets to boost liqudity while expectations of coal prices improving are also helping. Its 2018s were last seen at 83/84, up from yesterday's 80/81.75 and much higher than last week's trough of low 70s.

The bonds of coking coal company Winsway recovered after having been punished earlier in the week after China Aluminium scrapped a plan to take a stake in the company. The move was pinned on short-covering even as Moody's cut the company's rating by a notch to B1.

The 2017s are trading at 75/78 up from a low of 70/72 as some traders say that the company could still be an acquisition target. Some even talk of a bond buyback given its HKD2.34bn cash balance as of June 30.

(umesh.desai@thomsonreuters.com)

Keywords: MARKETS ASIA DEBT/

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