Lankan paper dominates global bond markets trading

Newly-sold bonds from Sri Lanka dominated trading with the 2022s trading as high as 101.75 even after pricing at an aggressive level.

The older bonds due 2021 are a quarter of a point lower at 103.75/104.75. The iTraxx IG series 17 was quoted at 164bp/166bp, about one basis point tighter and sovereign paper remained in demand, with bonds from Philippines and Indonesia extending their recent rally.

“The market technicals are good both in terms of redemptions in the rest of the year and the fund flow data,” said a Singapore-based fund manager.

“The Sri Lanka deal is a case in point. Shows you how much demand there is in the sovereign part of the market, despite gravity defying valuations. There is a lack of sovereign paper in Asia and this reflects the demand supply imbalance.”

These deals helped Asian credit markets to be firm but gains were limited as Fed chairman Ben Bernanke offered few hints of additional monetary stimulus and the resumption of supplies also being closely watched, according to IFR, a Thomson Reuters service.

It said Philippine and Indonesian sovereign bonds resumed their rally. Philippines 2037 is up an eighth at 115.125/116.125 and the Indonesian 2042 is also higher at 107.625/108.625.

The current rally is turning a blind eye to fundamentals in some cases with even weak earnings not having a negative impact.

India’s Axis Bank bonds due 2017 trading at 400bp/390bp unchanged from Tuesday even after its net profit fell short of consensus earnings.

In South Korea Hana Bank and Korea Exchange Bank saw little impact on their bonds after a plunge in net profit.

Hana’s bonds due 2017 spreads were steady at 200bp/195bp on Wednesday. They are down from the 265bp reoffer level in April. KEB’s 2017s, issued last month at a spread of 255bp are trading unchanged at 203/198bp above.

In the high yield segment, bonds recovered from a sluggish start as a solid open in Europe gave investors a boost. Agile Property bonds due 2017, the sector benchmark, are trading up at 101.75/102, from the morning’s 101.50.

Investors are watching the new issue pipeline quite closely with bonds from Indonesian township developer Jababeka Industrial Estate likely to be a litmus test for sub investment grade paper demand. It has set an 11.75-12% guidance for a five-year non call 3 bond.

In the high grade market, Korea Gas five-year paper with a guidance of 195bp over is being closely watched. Investors are keen to see if orders will stick if the guidance is aggressively tightened, as has been the trend with recent deals from Sri Lanka to Temasek.