HONG KONG -- Asian bonds weakened on Friday but trade was muted ahead of US employment data due later in the day, after bleak figures earlier in the week showed the world's largest economy was already mired in recession.
The US government is expected to report another sharp fall in employment as weakening consumer and business demand prompted companies to cut jobs to reduce costs, economists polled by Reuters forecast.
In Asia, the iTRAXX investment-grade index was quoted at 410/460 basis points (bps) compared with Thursday's 415/435 bps, reflecting a higher mid-point.
The equivalent high yield index was quoted at a wide 1,200/1,400 bps, compared with the previous 1,175/1,325 bps.
"People are not expecting much trading to take place today. It's payrolls so we will wait and see what happens," said a Hong Kong trader.
A Reuters poll forecast non-farm payrolls shed 340,000 jobs last month. But after a report issued on Wednesday showed US private employers cut 250,000 jobs in November, some analysts are suggesting Friday's data could show job losses reaching 400,000.
Meanwhile, credit markets are becoming less wary of the outcome of the three major US carmakers' plea for emergency government aid.
Some traders said spreads were already factoring in distress.
"People expect a low recovery anyways. The latest talk is of a pre-packaged bankruptcy in which case debt holders will get badly hurt in any case," said a trader in Singapore.
South Korean spreads widened after the country's vice finance minister said carmakers, semiconductor companies and petrochemicals firms were in most need of help as the global downturn runs its course.
Its five-year credit defaults swaps (CDS) -- insurance-like contracts that protect against defaults and restructuring -- moved out by 10 bps to 410/430 bps.
"At the end of the day, Korea has the reserves to bail out its industries, so there is not so much concern," said the Hong Kong-based trader.
Investors are also beginning to worry about refinancing risks as the year draws to a close.
BNP Paribas said in a note that $250 billion of external debt was due for redemption over the next three years, with roughly about $100 billion in 2009.
"Given these jurisdictions' bank-centric themes, supportive governments, and formal USD swap lines with the US Fed, we believe near-term external refinancing risks will be expressed only in higher costs," said Brett Williams, BNP's analyst.
That pressure could mean that many regular issuers to the offshore bond will increasingly turn homewards for funds.
The Philippines, one of the most active sovereign debt issuers in Asia ex-Japan, has already indicated this.
Its bonds were trading steady although the bid-ask spreads were quite wide, indicating a lack of trading interest.
Bonds due in 2031 bonds were quoted at 90/92 cents to a dollar.
Philippine five-year credit default swaps (CDS) were quoted at 460/500 bps, compared with Thursday's 425 bps.
"The government has said they will borrow locally or from multi-lateral agencies if market conditions abroad do not allow for a successful launch," said a Manila-based trader explaining the relative calm.
