Saturday, 21 July 2018

Asian credits battered on dark day for market

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Asian credits were battered today following a sell-off in equities in the West on Friday and an 8.5% slump in the Shanghai index today.

“This is one of the darkest days I can remember for Asian credit,” said one credit trader.

Asian bonds have been fairly resilient in recent weeks, despite sharp drops in the region’s equities and foreign currency markets, but today was the day that the contagion reached credit.

Mongolia’s sovereign 2022s, also suffering from the weakness in commodity prices, fell 1.5 points today to 79.25/80.25 to yield around 8.9%.

Some Chinese asset managers were seen selling Asian dollar bonds.

Few bonds were trading, but CDS was very active, given the huge volatility.

The Asian iTraxx investment-grade index opened 12bp wider and had soon stretched its losses by a further 5bp. At the time of writing, it had tightened slightly and was at 142bp/145bp, 15bp wider. A source said one or two global macro funds had been big buyers of the iTraxx index recently, putting in orders of US$100m or so per day.

The Japan iTraxx was 15bp wider at 69bp/71bp, and Australia at 114bp/116bp, out 7bp.

“We are very mindful of outflows from emerging markets funds,” said the trader. “Locals need to step up, and they are unlikely to buy dollar credits.”

High yield was less active, having already suffered a correction last week, with Indonesian high-yield credits having lost 10 points in a week and Chinese industrial names dropping 2–3 points on Friday.


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