SINGAPORE, June 24 (IFR) - A sell-off in Chinese stocks added to selling pressure in Asian credit and China’s CDS ended almost 20bp wider while some high-yield bonds dropped as much as USD5 in price terms.
“These are big moves, but bear in mind that Chinese stocks are down massively today,” said one strategist in Singapore. The CSI300 index of leading Shanghai and Shenzhen A-share listings ended down 6.3% while the Shanghai composite index closed 5.3% lower in the day.
The biggest losers in the Chinese market were the banks as investors started to price in fears that a liquidity crunch onshore could have wide-ranging effects on the financial system. As a result, CDS for the banks also spiked more than 20bp.
That fear was also the main culprit for the sudden rise in the sovereign CDS as some accounts were hedging exposure to Chinese banks through the sovereign’s derivative.
The rise in default swaps for China and its largest issuers helped boost the Asia iTraxx IG CDS index, which closed 12bp wider in the day, quoted at 171bp/175bp.
While China was the focus point, the selling activity was not restricted to the sovereign. Indonesia’s 2043s, for instance, were last quoted at 77.00, more than USD20 lower than the price at which they were issued earlier this year.
The spreads of most investment-grade corporate issues were also 10bp-20bp wider on the day. Capitaland’s 2022s, for instance, were last quoted at 265bp, about 20bp wider compared to Friday.
“We are seeing a lot of people who are forced sellers, but they are having a hard time finding someone to buy their bonds,” said one trader. “There is some trading, but people have been getting a sticker shock when they can find a bid.”
This trader said that he did not expect the sell-off to stop at least until Treasury rates stabilized. “And there is no sign of that yet,” he said.