HONG KONG -- Asian sovereign and corporate spreads tightened on Friday from recent two-month highs after better-than-expected data on US retail sales and employment eased concerns about the world's largest economy.
But inflation remains a risk to markets, with central banks in the Philippines and Indonesia on Thursday raising interest rates to tackle soaring commodity prices.
Credit concerns could also eventually hurt, analysts said, amid downgrades of US bond insurers and concerns about further write-downs at US and European financials.
A further tightening of spreads was kept in check ahead of the US employment data later on Friday, with economists forecasting the US economy lost 58,000 jobs.
"Given that (US) data this week has been stronger, a number that does not beat consensus will likely disappoint the market and could provide the catalyst for the next leg wider in spreads," said Lehman Brothers analysts in a report.
Still for now, investors in Asia were comforted by US data on Thursday showing stronger-than-expected weekly jobs data and retail sales in the United States.
That took the sting off a downgrade by Standard & Poor's on the US bond insurance units of MBIA Inc. and Ambac Financial Group, and tough talk on inflation by the European Central Bank that hit government bonds across the world.
The iTRAXX Asia ex-Japan high-yield index a key measure of risk aversion, narrowed by about 20 basis points (bps) to 480/490, a trader said, after earlier this week widening out to a two-month high of 503.
The cost of buying protection on Philippine debt also fell, but not to the extent of the iTRAXX high-yield index, after the country's central bank raised interest rates on Thursday by a quarter of a point.
Manila's five-year credit default swaps (CDS) tightened by about 8-10 basis points to 228/233.
Philippine cash bonds were flat, with debt due in 2031 at 111.375/111.625 cents to the dollar, and 2032 bonds at 96.375/96.625.
"The interest rate hike was largely expected by the market, but it kept cash bonds flat today," said a Manila-based trader.
Indonesia's five-year CDS tightened, but only by about 5-10 bps to 455/465 after the country's central bank on Thursday raised its key interest rate by a quarter of a point.
Still, issuers are racing to sell bonds ahead of what could be a volatile period in mid-June when US lenders such as Lehman Brothers are expected to post weak quarterly results.
China Merchants Holdings will sell a total of $500 million five- and 10-year dollar bonds, a source involved in the deal told Reuters on Friday.
The Chinese port operator sold $300 million in five-year bonds at 200 over midswaps, and $200 million in 10-year bonds at 250 basis points over midswaps, in line with earlier guidance.
Other issuers looking to price bonds are South Korean lender Kookmin Bank which completed a non-deal bond roadshow earlier this week, while Trade and Development Bank of Mongolia is hitting the road for a potential dollar bond deal next week.
Indonesia is expected to soon announce a schedule for a planned roadshow for a potential sovereign bond sale that could reach up to $1.5 billion, market sources said.
