Asian bond spreads tighten on Citigroup relief
abs-cbnnews.com | 07/21/2008 3:04 PM
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Reuters
HONG KONG - Asian bond spreads tightened on Monday tracking a rally in regional stock markets after a smaller-than-expected loss at Citigroup eased some of the recent concerns over the U.S. financial sector.
But caution remains given the prospects of rising inflation in the region, interest rate increases and slowing global economic growth, which has sharply curtailed the sales of new Asian bonds this month.
The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, narrowed by about 15-20 basis points (bps) to 538, while the investment-grade index moved in by 5 bps to about 145.
"We've tightened pretty much across the board given that equity markets are firm, mostly fuelled by the Citi numbers on Friday," said a Hong Kong-based trader.
"The next downside worry is that the central banks will raise rates, and that should be a dominant theme over the summer."
Citigroup, the biggest U.S. bank, posted better-than-expected quarterly results on Friday, despite reporting $11.7 billion of write-downs and credit losses.
The results helped ease some of the concerns over the beleaguered U.S. financial sector following this month's bailout offer for U.S. mortgage lenders and the failure of U.S. regional lender IndyMac Bancorp.
Asian stock markets rallied on Monday, with the MSCI index of the region excluding Japan up 2.9 percent as of 0400 GMT.
Inflation has been another top concern for Asian investors, which is prompting central banks in the region to raise interest rates. Most recently, monetary authorities in the Philippines and Thailand raised borrowing costs last week.
Dull primary market
Still, the improved mood helped sovereign credit spreads tighten after last week's widening.
Philippines' five-year credit default swaps (CDS), or insurance-like contracts that protect investors against defaults, moved in by around 10 bps to 250, while Indonesia's CDS moved in by the same amount to 260.
The intense volatility this month in global markets has scared off Asian issuers, with the only major deal seen being a $350 million five-year bond from Philippine conglomerate SM Investments.
Despite market speculation about issuers waiting for opportunities, no deals have yet been announced.
