HONG KONG, Jan 16 (IFR) - Asian credit spreads widened
after euro zone sovereign downgrades protracted worries about
European lenders withdrawing
more funds from the region, but the weakness was capped by a
smaller than expected cut in France's rating.
Newly sold bonds from Hong Kong property developer Nan Fung
International Holdings outperformed the broad market as the
debut issuer's USD350m offering was nearly four times
The bonds were initially traded as wide as 472bp over US
Treasuries before tightening.
The Asia ex-Japan iTraxx investment grade series 16 index
widened to 209bp, compared with Friday's 201bp/204bp. Korea Gas
saw its bonds widen out to 330bp/325bp after trading as wide as
332bp in New York hours. These 30-year bonds were trading around
325bp on Friday after pricing at 345bp over US Treasuries.
The investment grade sector was 3bp-5bp wider with MSCI's
broadest index of Asia Pacific shares outside Japan down 1.3%.
"The downgrades were widely expected but the fact that
France was cut by only one notch is positive. There was
expectation of two notches," said a Singapore-based trader with
an Asian bank.
"It doesn't feel like we are staring off the abyss, like at
other times in past couple of months."
"That's why we see no big follow through selling. Of course, the
US holiday is another factor why equities haven't been dumped as
severely as they would be if they were concerned about the
Last Friday, Standard & Poor's downgraded the credit ratings
of nine euro-zone countries, stripping France and Austria of
their coveted triple-A status.
In another potentially more ominous setback, negotiations on
a debt swap by private creditors seen as crucial to avert a
Greek default broke up without agreement in Athens, although
officials said more talks are likely this week.
European banks have already started withdrawing from Asian
loan markets which is pushing some of the borrowers to the bond
Hong Kong infrastructure company NWS Holdings is mulling a
US dollar Reg S guaranteed bond. Proceeds from the proposed USD
bond will be used for general working capital purposes and to
refinance borrowings including a 364-day, HKD5bn bridge loan.
Latest fund flow data shows that investors withdrew USD741m
from emerging market bond funds in the week to January 11,
compared with a gain of USD162m in the week before, according to
EPFR Global. The fund tracker also said hard currency funds
showed USD558m of investor flight after five weeks of inflows.
High yield funds showed inflows of USD1,943m up from the
previous week's USD1,147m.
"The withdrawal of European banks has driven up loan
spreads. US and Asian banks have taken up some of the slack but
they cannot totally replace the gap left by the European banks,"
said Arthur Lau, Asia ex-Japan head of fixed income for
PineBridge Investments which manages USD82bn in assets.
"There is some supply pressure on account of that."
In the high-yield sector, prices were off by a quarter to
half a point but expectations of monetary easing in China and
lack of supplies from borrowers has reined in losses.
Country Garden 2018 is trading at 92/93.5, Longfor Property
2016 at 94.75/96.25 and Evergrande 2015 at 86.50/87.50. Even
coal credits from Indonesia are trading weaker with the Bumi
2017s down at 100.75/101.75.
"Technically high yield has been well bid because of less
supply. Bonds may not react that much to negative news and the
next signal will be provided by China data," said a Hong Kong
based trader with an Asian bank.
China's once turbo-charged economy is on track to slow for a
fourth successive quarter as global demand slackened, suggesting
the government may unveil fresh policy steps to ward off a hard
economic landing. It unveils Q4 GDP and December economic data
For a table showing the pipeline of dollar-,yen- and
issues from Asia please click here www.ifrmarkets.com