Asia Dollar Bond Sell-Off Worsens as Investors Stay Cautious
(Bloomberg) -- Spreads on Asia’s investment-grade dollar bonds widened further by 5-10bps Tuesday as investor caution lingered on U.S. Treasury moves, according to traders. Market participants are waiting for the bonds to cheapen further before they start bottom-fishing.
* Asian IG bond spreads jumped 8bps to 124bps on Monday, according to ICE BofAML indexes, the highest level since mid- December; Asian HY bond premium increased 11bps Monday to 390bps, the highest since Jan. 4
* The cost of insuring government and corporate bonds against default in the Asia ex-Japan region rose by about 4bps to 72bps on Tuesday in early trading, the most since Sept. 20
* Chinese real-estate developer Sunshine 100 is the sole firm to market a dollar bond deal Tuesday in Asia
Here are what investors and analysts are saying about the market:
JPMorgan (Anne Zhang)
* IG and HY spread performance were very orderly; the most volatility was from rates
* The sell-off might have been exacerbated by technicals, fundamentals are still supportive, so if this volatility pushes valuations back to more healthy levels, we would be looking to buy
Invesco (Ken Hu)
* “We are not yet ready to add position now as inflation expectations will continue to haunt the market. I expect the 10- year yield will go up to 3% in the short run as oil prices have risen a lot.
* “We are still positive on the market, but will wait for a better time for bottom-fishing. That’s when UST yield goes up to 3%”
Income Partners (Raymond Gui)
* “Currently for our HY funds, we have already been defensively positioned with short duration and some cash in hand. So if the Asian HY market corrects further, we could extend duration and use cash to buy bonds at cheaper levels. But we are not in a hurry to buy until we see the market stabilize.”
Bank of China International (Wu Qiong)
* “Price discovery will be the key market theme today as cash- rich clients may have the opportunities to buy at lower prices.
* "I am not bearish on Chinese credit fundamentals, but the valuations were quite tight and sensitive to the change in risk appetite.”
DBS (Neel Gopalakrishnan)
* "It has been a challenge to find value in emerging-market bonds and some correction in prices is due. A meaningful correction in prices could result in buy on dip opportunities, especially as credit fundamentals are generally still sound.”
* “We would advise focusing on relatively shorter tenors as rising interest rates will still remain a concern."
NN Investment Partners (Clement Chong)
* “U.S. Treasury rates have moved up a lot in recent months and in this environment it’s hard to see a lot of room or reasons for spread to narrow. They are already at very tight levels in Asia.”
* “Market gyrations will continue for a while until Treasuries are more stabilized.”
Lucror Analytics (Charles Macgregor)
* “The technicals are negative for risk assets, hence I expect to see at least 100bps correction in Asian HY spreads in the coming weeks if volatility continues.
* “This feels like a big retracement in store, if past VIX history in August 2015 is instructive. Short covering caused initial moves in various markets. This could be followed by a bunch of offshore investors getting spooked about Asian risk.
* “This will affect investor appetite for new issuance by single B names.”
2018-02-06 07:36:20.736 GMT
By Lianting Tu, Carrie Hong and David Yong