Spreads in Asian bonds surged to a record high on Wednesday after Citigroup posted its biggest quarterly loss, heightening fears of continued US subprime-related write-downs by global lenders.
The mood was dampened further by data showing an unexpected fall in US retail sales in December, providing the strongest signal yet that Asia's top export market was sliding into recession under the weight of a housing and credit crisis.
Spreads in the widely-followed iTRAXX Asia ex-Japan high-yield index - a key measure of risk aversion - widened by 15-20 basis points (bps) to around a record 429, with spreads now some 100 bps wider this year alone.
The benchmark J.P. Morgan Emerging Markets Bond Index Plus showed yield spreads over US Treasuries widened by 13 basis points to 270. "This is one of the worst Januarys I can think of, ever," said a debt investment banker.
"No longer are we talking about just the subprime issue, we are now talking about economic growth, or the lack of it. It's not really just the Citigroup story that caught people's attention, but it was also the very weak retail sales numbers," he added.
Spreads in credit default swaps (CDS) for investment-grade issuance also surged as investors sought protection against the risk of all restructuring and defaults. The iTRAXX Asia ex-Japan index that tracks this segment moving out by around 15 basis points to 120.
The battering of Asian credit markets comes as MSCI's measure of Asia-Pacific stocks excluding Japan slumped 3 percent tracking a steep fall in Wall Street overnight. Citigroup posted on Tuesday a record $9.83 billion quarterly loss, and said it plans to raise $14.5 billion, slash its dividend and cut 4,200 jobs to shore up its balance sheet.
"The sell-on-the-news reaction to bad results, which we reckoned were largely priced in, implies more sell-on-the-rumour pressures ahead," wrote BNP Paribas' analyst Brett Williams in an email to clients on Wednesday. Traders said the volatility would likely remain this week as more US financial firms are set to post results, including J.P. Morgan Chase & Co later on Wednesday and Merrill Lynch on Thursday.
The deteriorating market conditions are also expected to hold back issuers that had been looking to price some bond deals, bankers said. Philippines is in no urgent need for a global sovereign bond issue that is likely to be $500 million, the country's Acting National Treasurer Roberto Tan said on Tuesday.
Others such as South Korea's Woori Financial Group and Kia Motors Corp and Indonesia's PT Pertamina are among the corporate issuers believed to be ready to sell bonds. "As we progress further into the year, you are going to have more and more backlog," said a syndicate banker. "This is a vicious circle, in which secondary markets continue to trade extremely weak in anticipation of supply and new issue concession."
Comments
Comments are closed.