Research Roundup: Asian Credits Rally as Fed Maintains Pace
Asian credits rallied and default risk slumped the most in four weeks after the Fed raised its benchmark lending rate a quarter point and continued to project two more increases this year.
The Markit iTraxx Asia index dropped to 89bps as of 11am in Hong Kong: Westpac prices
AMTD Asset Management (William Fung)
“While noting the U.S. economy is on the up-trend, the Fed kept its tone and near-to-intermediate outlook largely unchanged, that’s a relief for the global markets”
“I expect Asian markets to be on the front foot for the next few days. I wouldn’t be surprised to see Asian issuers taking advantage of the positive backdrop and print deals. So it will be a question of how much supply vs. current market optimism."
BOC International Hong Kong (Steve Wang)
‘‘The near-term uncertainty is cleared and the waiting game is over. Asian credit spreads will be further compressed by fundamental improvement in the economy and corporates and also by more demand from Asian total-return investors.”
Fidelity International (Bryan Collins)
“Asian high-yield bonds are relatively well protected from interest-rate moves given their shorter duration compared to other asset classes.”
“Markets have already priced in a March hike and have priced in even more hikes later in the year. Given the gradual pace of interest rate normalization from the Fed on the back of an improving U.S. macro environment and full employment, this will further support the Asian growth story.”
“We continue to see interesting opportunities emerging here in Asia, particularly for companies with a strong domestic demand focus as well as those benefiting from policy reforms and strengthening regional capital markets.”
JPMorgan Chase & Co.’s Asia private-banking unit (Ben Sy)
“We see relief in the short term for the fixed-income market in Asia after the Fed move. Risk appetite will come back as the Fed’s future rate hiking path seems benign.
‘‘Asian bond new issues will also come back. The U.S. Treasury rally may be short term as U.S. growth data will likely be strong.”
Lucror Analytics (Charles Macgregor)
“The Fed’s rate rise reduces some uncertainty for Asian investors and clears what has been a distraction for a number of weeks. I believe the response will be positive given the rise signals a stronger U.S. economy.”
“Investors will be more focused on hard data such as U.S. GDP, retail sales, and average hourly earnings. Also, fiscal uncertainty associated with new Trump administration. Asian investors will also continue to focus on local economies”
“We expect to see more new issues despite the rate rise, given yields on 5-year Treasuries still look attractive and investor demand is high.”
Mizuho Securities Asia (Mark Reade)
“While the FOMC rate hike and dot plots were as expected, the subsequent market reaction is a classic case of ‘buy-the-rumor-sell-the-fact’.”
“In the short term, expects increasing demand for Asian USD credit and more other risk assets with the move lower in UST yields fueling demand for Asian USD credit and most other risk assets.”
“In the medium term, expects upward pressure on UST yields, and spreads to widen.”
NN Investment Partners (Leo Hu)
“The Fed delivered what the market expected. Stability of the market is supportive for risk assets. It’s now business as usual but people feel better because uncertainty is out of the way.”
Nomura Holdings (Annisa Lee)
“Investors are back on risk-on mode as the market previously expected maybe more than three rate hikes this year and Yellen indicated only three times.”
“All bonds are getting tighter. We expect more bond supply now. Sentiment is getting better for now.”
PineBridge Investments (Arthur Lau)
“The market expected four hikes before the meeting and more hawkish guidance but now there is a relief rally to cover short positions on expectations of two hikes this year.”
“I expect the market to be risk-on until the next hike. Macro data is strong and political uncertainty in Europe has eased”
Western Asset Management (Swee Ching Lim)
“It feels like the market’s worst fears of an accelerated rate hike program are off the table for now, so we are seeing risk assets coming back with spreads tightening.”
“There’s a sigh of relief for the time being, so new issues in Asia will return after a very brief hiatus and investors once again focusing on the primary pipeline. Speed bumps are still scattered along the way with the French elections the next big event to watch.’’
Bloomberg News
March 16, 2017, 03:04:43 GMT
Reporting by Lianting Tu, Carrie Hong and Annie Lee; Editing by Neha D’silva