Morning Commentary: Market tone improves on Merkel comments; China Great Wall outperforms

By Christine Van Dusen

Atlanta, June 17 – Investors in risky assets started to come out of their shells on Wednesday after comments from German chancellor Angela Merkel helped calm some fears about the ongoing economic turmoil in Greece.

“Merkel stated that she was prepared to do ‘everything possible to keep Greece in the euro zone,’” according to a report from Barclays. “However, with no new proposals on the table, preparations for a possible Greek default are intensifying.”

Still, the tone improved for Asian bonds on Wednesday morning, with many names moving as much as 3 basis points tighter, amid light flows and selective demand.

“It feels like most of the rally is driven by short-covering, with high-beta names outperforming,” a London-based trader said.

The recent issue of notes due in 2018 from China Great Wall Asset Management outperformed, with the bonds moving 4 bps tighter on Wednesday morning, he said. The notes came to the market at a spread of 150 bps over Treasuries.

“Korea closed unchanged,” he said. “India is consolidating, but corporates remain heavy. Seen good two-way in short-dated financials.”

Meanwhile, Malaysia’s bonds closed the Asian session slightly tighter, with some buying interest seen for sukuks.

In other trading, bonds from Ukraine have so far this week ticked lower, with the 2017s moving down about ˝-point, said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

Quasi-sovereigns from Ukraine have seen light flows, he said.

Investors are now looking ahead to the forecasts from the Federal Open Market Committee and a press conference from chairman Janet Yellen.

“We expect an upgrade in the description of the economy in paragraph one of the statement, although the committee may still be cautious in its description of consumption,” Barclays said in its report.

In deal-related news, Estonia-based utility Eesti Energia AS is looking to issue euro-denominated notes, a market source said.

© 2015 Prospect News.
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