Taking a cautious view, one Singapore-based fund manager noted that expectations the new Donald Trump presidency would usher in business-friendly tax reforms and increased infrastructure spending in the US had largely run their course, at least for now. This pause in the Trump reflation trade had repercussions for bond pricing in Asia, because of how the market had behaved in late 2016, as investors turned to the region for yield, the fund manager said.
"The bond market has baked in too much of Trump's promised tax overhaul and the increase in infrastructure spending in the US," he told FinanceAsia. "It is becoming impossible to overlook the downsized fundamentals and geopolitical risks."
But others in the market were more sanguine.
“Generally, price volatility in Asia [is] low because the market is primarily driven by technical factors such as an ample liquidity condition and a strong dollar environment,” said a fixed-income trader at a European bank. “There was some selling from the institutional side in the past few weeks, but private-bank investors continued to be buying high-yield names, especially commodity names.”
Bank of China raised a whopping $3.045 billion from a multi-currency transaction. That included $1.7 billion worth of US dollar-denominated bonds, a €500 million three-year floater, a Rmb1.5 billion three-year fixed-rate bond, and an A$800 million five-year floater.
For the dollar tranche, the state-owned lender, rated A1/A/A by Moody’s/S&P/Fitch, garnered $2.1 billion from 120 accounts for its five-year bond, and another $750million from 55 accounts for its 10-year note. The three-year floater, issued under the Dubai branch, captured $1.3 billion from 60 accounts, according to a syndicate banker familiar with the transaction.
The two fixed-rate notes were priced at the tight end of the marketing range, and both were traded wider in the secondary market on Wednesday. The $750 million April 2022 note was priced at 112.5 basis points over the five-year US Treasuries, while the $300 million April 2027 note was fixed at 135bp over the 10-year Treasury curve.
In the secondary market on Wednesday, the shorter-dated note was trading 115bp over the five-year yield curve, or 2.5bp wider than the re-offer price. The longer-dated one was quoted at 137bp over, or 2bp wider.
“Asian markets have a somewhat softer tone with spreads edging wider in both investment-grade and high-yield bonds,” one syndicate banker running the deal said.
Property debut
Yida China, a single B rated Chinese property developer, made its first international bond foray, selling a $300 million three-year bond at a yield of 7.5%.
Once the book-building process was completed, the Hong Kong-listed company had garnered $2.1 billion of orders from 135 accounts, a second syndicate banker said, as investors looked past its lacklustre operating performance.
In sharp contrast to the red-hot property sales seen in China last year, the group posted a 6% decline in its full-year revenue and a 31% drop in net profit, in part due to losses incurred from financial derivatives and money spent on acquisitions.
On Tuesday morning, bankers pitched the Reg S deal at "7.75% area" before tightening it to "7.5% area." Final pricing of the April 2020 note was fixed at 98.574% on a coupon of 6.95% to yield 7.5%, according to a term sheet seen by FinanceAsia.
The bond traded below water in the secondary market on Wednesday, with a yield of 7.691% on the bid side, according to market data.
According to a sales note from a non-syndicate bank, analysts warned to avoid exposure to the company, citing its small scale, limited geographic diversity and aggressive financial profile.
In the past two years the group's net gear ratio, a metric of indebtedness, has been well above 100%.
Oil India
Oil India returned to the international bond market for the first time in seven years, selling a $500 million benchmark note with a 4% coupon.
Rated Baa2/BBB- by Moody's /Fitch, the state-run oil group went out with initial price guidance at 200bp area over the 10-year US Treasury yield, before narrowing the Reg S deal to 2.5bp each side of 175bp above the curve. Final pricing of the April 2027 note was fixed to yield 172.5bp over US Treasuries.
In terms of fair value, syndicate bankers used Bharat Petroleum's outstanding $600 million 4.375% January 2027 bond as the key valuation benchmark. The bond was quoted at 169bp over US Treasuries on Tuesday morning, implying that the new deal from Oil India was priced in line with its peers.
Like its Chinese counterparts, the bond fell slightly in subsequent secondary market trade, with the yield spread widening to 176bp on Wednesday, 3.5bp above its reoffer price.
The group built a $1.2 billion order book from 110 investors, syndicate bankers said. Asia took 56% of the deal, the remaining 44% was sold to European and offshore US accounts. By investor type, asset/fund managers were allocated 63%, insurers/sovereign wealth funds 18%, banks 14%, and private banks 5%.
