Oil prices, slowing demand hit Asian bonds; China Orient trades down; liquidity still thin

By Christine Van Dusen

Atlanta, Dec. 12 – Asian bonds were unable to rally on Friday as sellers emerged and high-grade bonds closed as much as 4 basis points wider to end a challenging week for emerging markets assets.

Oil prices continued their decline on Friday, this time on the news that global oil demand could slow to under 1 million barrels per day in 2015.

“China oil names were hit hard, and closed 5 bps to 8 bps wider,” a London-based trader said.

China National Petroleum Corp.’s 2023 notes traded down, as did China National Offshore Oil Corp. And bonds from Malaysia were 3 bps to 5 bps wider while Cagamas Bhd.’s 2019s moved lower.

Also from China, the new issue of notes from China Orient Asset Management Corp. – a $500 million tap of its 3¾% notes due September 2019 that priced at a spread of 255 bps over Treasuries – traded down at 245 bps during Friday’s session, a trader said.

The notes closed Friday at 250 bps bid, 245 bps offered.

Standard Chartered Bank, UBS, Morgan Stanley, Bank of Communications, China Merchants Bank and Bank of China were the bookrunners for the Regulation S deal.

The notes were consolidated with and have the same terms and conditions as the company’s notes issued in September.

In other trading, spreads for notes from India were “broadly intact,” the trader said. “But liquidity is extremely thin.”

Among high-yield names in Asia, Chinese property companies saw their bonds move 1/8 point to 5/8 point lower, he said.

“High-yield sovereigns are under heavy pressure, with the Indonesia curve closed 1 point to 1½ points lower,” the trader said. “Indonesia’s 2024s traded down at 113¾ while Indonesia’s 2044s traded down at 123¾.”

Ukraine in focus

Looking to Ukraine, five-year credit default swaps spreads have spiked sharply during the last two days, following on the news that the prime minister wants to discuss expanding the sovereign’s bailout package, according to a report from Commerzbank.

“An [International Monetary Fund] mission is negotiating and evaluating Ukraine until Dec. 18,” the report said. “The government is trying to get the size of the standby agreement expanded, if possible, and tranches released early in order to keep servicing its debt.”

But if the military and geo-political picture doesn’t improve, it could be difficult to provide timely disbursements, the report said.

“Then default probability will rise,” the report said. “We remain underweight on Ukrainian credit.”

© 2015 Prospect News.
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