EMERGING DEBT
Asian bond spreads widen; new debt sales eyed
Reuters
First Posted 13:37:00 08/20/2008
Filed Under: Emerging Markets Debt, Government Debt, bonds and t-bills
HONG KONG -- Asian bond spreads widened on Wednesday for a second session on the back of data showing rising inflationary pressures in the United States and continued concerns about the health of the global financial sector.
Regional spreads are unlikely to tighten in the near term, traders said, given the continued risk aversion and what could be a heavy slate of new debt sales in September.
South Korea mandated six banks for a planned sovereign debt sale that could reach $1.0 billion, while Wing Hang Bank is meeting Asian investors this week for a potential dollar bond sale, sources told Reuters Wednesday.
The two issuers join a growing pipeline of potential debt sales in September, especially from South Korea, that are expected to include POSCO Engineering and Construction as well as Korea National Housing Corp.
"You have a lot of concerns in the market these days, so it would be hard to see spreads tighten anytime soon," said a Hong Kong-based trader.
"New issuance is obviously going to have an impact on spreads giving that any new issue will have to offer concessions above existing spread to investors," he added.
The iTRAXX Asia ex-Japan high-yield index widened by 10-12 basis points (bps) to 557/562 basis points, while the equivalent investment-grade index moved out by 5-7 bps to 151/157.
The widening comes after data on Tuesday showed US wholesale prices shot up in July at the fastest annual rate in 27 years, while a separate report showed US home builders cut back on construction as they worked through a glut of unsold homes.
Despite the recent slump in oil prices, investors are increasingly concerned about rising inflationary pressures at a time of slowing global economic growth. Worries also abound about further credit-related losses in the financial sector.
Brokerages continue to slash their earnings outlooks on major investment banks such as Citigroup and Lehman Brothers, while US mortgage finance providers Fannie Mae and Freddie Mac are also attracting concerns.
The Philippines' sovereign cash bonds, among the most widely traded in the region outside Japan fell about half a point each, with 2031 bonds quoted at 109.5/109.75 and 2032 bonds at 96.5/96.75.
The cost of protection against a default in Philippines' sovereign debt, as reflected by its five-year credit default swap widened by 10 basis points to 233/238.
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