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Asia credit close: credit lags equities after China cuts RRR again

[HONG KONG] The new reserve ratio requirement cut by the People's Bank of China late on Monday resulted in decent gains across Asian equities with credit markets on the quieter side.

Credit traders described the session as lacklustre with investment grade bonds mostly unchanged to 1bp tighter.

The iTraxx Asia investment grade ex-Japan was quoted one basic point (bp) tighter at 155.67/157.67.

"The market hasn't felt too constructive, but at the same time I don't see an immediate catalyst for things to widen," said an investment-grade bonds trader based in Singapore.

On the equities side, Shanghai was up 1.7 per cent and Shenzhen 2.3 per cent. The indices enjoyed a strong rally in late afternoon after spending most of the day only moderately higher.

The Hang Seng gained 1.3 per cent and the Nikkei was up 0.4 per cent.

The RRR is the amount of cash that banks must hold as reserves and the latest 50bp cut could free up billions in cash for lending.

The US dollar slipped 0.19 per cent versus the renminbi at RMB6.5398 to the US dollar.

Brent Crude was quoted almost 1.04 per cent higher at US$36.95 per barrel.

One of the day's biggest movers in credit was property developer Sino-Ocean Land which was hit with a negative outlook on its Baa3 rating from Moody's. The agency said the change in outlook was related to the company's weakening credit metrics.

The company's 2027 bonds fell almost a full three points on the downgrade, with bids at 98.349, according to Tradeweb.

Recent issues saw a degree of tightening but were also quiet. MUFG's new 2021 and 2026 TLAC-eligible bonds were bid flat at US Treasuries plus 159bp and 199bp respectively.

The Philippines new 2041 bonds tightened 1bp to yield 3.541 per cent, while Bank of China Hong Kong's 2021s tightened 3bp.

Markets will now brace for the results of Super Tuesday in the United States where 13 states will cast their vote in the presidential election primaries.


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