HONG KONG -- Asian bond spreads narrowed on Monday, despite falls in regional equity markets, as investors viewed the market as sufficiently priced for default risks as the end of a tough year approaches.

Trading was very thin, as reflected by the wide differences between the bid and ask prices. Premiums for South Korea's sovereign debt narrowed despite continued concerns over its economy, while Thailand's showed little reaction to anti-government protests in the country.

Asian bond spreads have surged in 2008, after the US subprime mortgage market meltdown triggered a global credit crisis that pushed much of the world's economy into recession.

"It's a market with fairly wide spreads, and nobody is making many bets," said one Hong Kong-based dealer.

The Asia iTRAXX investment-grade index excluding Japan, a key measure of risk aversion, narrowed to 10 basis points to 340 bps from Wednesday's levels. The contract was being offered at 370 bps.

Hong Kong, a major center of trading for Asian offshore debt, had public holidays on Thursday and Friday.

The benchmark high-grade iTRAXX index has surged more than five-fold since 2007, though it will end the year below the record around 650 hit in late October.

The iTRAXX high-yield index was trading at 1,150/1,350 basis points, having more than tripled for the year and having peaked at a record at around 1,400, also in late October.

South Korea's credit default swap (CDS) -- or insurance-like contracts that protect investors against defaults or restructuring -- narrowed by 10 basis points to 290/330.

The won currency hit its highest in nearly eight weeks on Monday -- a positive factor for bondholders given that it reduces the cost of servicing overseas debt.

Fears about Asia's fourth-largest economy have sent spreads surging this year. South Korea looks headed for a contraction in the first half of next year, in what would be its first contraction in a decade, President Lee Myung-bak was quoted as saying on Saturday.

Thailand's CDS were range-bound at 250 bps. Concerns about the economy and political uncertainty that has seen three prime ministers in as many months have driven the country's sovereign debt spreads wider this year.

On Monday hundreds of anti-government protesters blocked entrances to Thailand's parliament, delaying the maiden policy speech of new Prime Minister Abhisit Vejjajiva.