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Emerging debt-Asian bonds tighten but inflation worries remain
HONG KONG, July 4 - Asian corporate and sovereign bond spreads tightened on Friday in quiet trade, with nervousness about weakening global equity markets and surging inflation keeping many investors on the sidelines.
The iTRAXX Asia ex-Japan high-yield index <ITAHY5UA=ICAP>, a key measure of risk aversion, narrowed by about 10-15 basis points to 565/575, after the index had approached 600 basis points this week.
The investment-grade index <ITAIG5UA=ICAP> tightened by about 5 basis points to 155.
"Some of the widening we saw this week was seen as too much. But markets are weak, and inflation is a concern, especially for Vietnam, Indonesia and the Philippines," said a Hong Kong-based trader.
Global stock markets have suffered this week, with the Dow Jones index <.DJI> entering into bear territory, as oil prices surged to a record high, fuelling concerns about inflationary pressures at a time of slowing global economic growth.
Those concerns remain, with U.S. crude futures <CLc1> surging to a record $145.85 a barrel on Thursday, although trading was quiet ahead of a U.S. public holiday on Friday.
Indonesia's five-year credit default swaps <INDONE5UA=GFI>, insurance-like contracts that protect against defaults or restructuring, narrowed to 295 basis point after reaching 310 on Thursday.
The Southeast Asian country's central bank raised its main interest rate by 25 basis points on Thursday to 8.75 percent, its highest level since June last year, in a move to contain double-digit inflation. [ID:nJAK158537]
Bonds from the Philippines, one of the most active issuers in the region, were range-bound despite data on Friday showing consumer price inflation soared to 11.4 percent last month. [ID:nSP15733 ]
Philippine spreads have moved out roughly 60-70 basis points since the beginning of June amid fears about inflation.
"Although the data was higher than expected, by now the uptick in inflation has become expected," said a Manila-based trader.
The Philippines' 2031 bonds <PHIGLB31=RR> were quoted at 103.125/103.625 cents to a dollar and its 2032 bonds <718286BD8=RRPS> were at 90.50/91, little changed from Thursday.
But the country's 5-year CDS <PHILP5UA=GFI> tightened by about 10 basis points to 274.
DEALS ON HOLD
The widening spreads in the region this week have led to a dearth of new bond sales as issuers opt to wait for better market conditions.
"We are telling clients it's best to wait. If they desperately need the money, then we are advising them on alternatives," said an investment banker in Hong Kong.
"But things could turn around quite quickly. If the markets recover strongly, then we could see deals being announced as early as next week," he added.
Singapore-based Microchip packaging firm STATS ChipPAC <STTS.SI><3265.TWO> has yet to launch an expected dollar bond sale after meeting with investors last week.
Philippine conglomerate SM Investments Corp <SM.PS> will begin a roadshow for a planned dollar bond sale next week, with a source close to the deal saying it planned to market a five-year bond.
FIVE-YEAR CREDIT DEFAULT SWAPS
Bid/Ask spread
Current Week ago Korea Dev Bank 120/~ 115/~ Hutchison 122/~ 100/110 PCCW-HKT 120/~ 112/132 China ~/80 ~/68 Indonesia 285/~ 250/260 Korea 111/120 93/102 Malaysia 131/136 95/105 Philippines ~/280 ~/250
~no bid or ask spread For CDS prices double click on <GFICDS>
ASIAN BENCHMARK DOLLAR BONDS
Coupon Maturity Bid price Bid spread
5-YEAR
------
DBS Bank 7.13 15-May-11 106.02 156
Malaysia 7.50 15-Jul-11 107.56 150
ICICI Bank 5.75 12-Jan-12 96.96 344
Petronas 7.00 22-May-12 108.28 136
Hutchison 6.50 13-Feb-13 103.45 235
Chartered Semi 6.25 4-Apr-13 96.66 380
Korea 4.25 1-Jun-13 97.37 157
United Overseas 4.50 2-Jul-13 95.54 224
PCCW-HKT 6.00 15-Jul-13 102.36 218
China 4.75 29-Oct-13 100.74 130
10-YEAR
-------
Hutchison 7.45 24-Nov-33 101.33 334
Korea 4.88 22-Sep-14 99.39 100
PCCW-HKT 5.25 20-Jul-15 90.51 299
Woori Bank 6.13 3-May-16 97.32 258
Penerbangan 5.63 15-Mar-16 105.51 80
Philippines 8.75 7-Oct-16 113.00 268
Indonesia 6.88 9-Mar-17 95.13 366
ICICI Bank 6.38 30-Apr-22 89.91 400
Petronas 7.88 22-May-22 119.50 182
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