HONG KONG, Aug 1 (IFR) - Asian credit spreads widened on Friday, taking the cue from an equity sell-off in the US overnight that prompted investors to shed allocations and look to decrease risk exposure.
Chinese high-yield bonds were about a third of a point lower in the Double B rating category, including Longfor’s 2019s, Shimao Properties’ 2020s and 2021s and Country Garden’s 2019s.
Agile Properties’ 2017s remained unchanged, but Single B Evergrande’s 2018s dropped a half point.
New issues such as Greenland Hong Kong Holdings’ USD500m Reg S bonds, which priced to yield 4.625%, were trading near reoffer.
The weakness in trading came after the S&P 500 dropped 2% yesterday, marking the biggest daily drop since April, after a gain in US labor costs sparked concern that the Federal Reserve could raise interest rates sooner than the markets expected.
“Globally markets are risk-off after weak trading in the US,” according to a Singapore-based trader. “Chinese PMI numbers are helping sentiment in that space to remain fairly constructive, but we’ll have to see what happens for payrolls to judge next week’s performance.”
The nonfarm payrolls report, to be released today in the US, is expected to show that employment expanded for the sixth straight month by more than 200,000, an achievement not reached since 1997. The jobless rate is expected to stay at a six-year low of 6.1%.
“If the payrolls data is too strong, you’re going to see big moves in US Treasuries, and Treasury volatility is not good for credit,” said another trader.
This week the Fed had also upgraded its assessment of the US economy, which grew at a 4% annual rate in the second quarter. That effectively endorsed a view that the Fed is probably months away from raising rates in the world’s largest economy.