Asian bond spreads were range-bound on Tuesday after a raft of weak earnings from US blue chips such as Apple and American Express raised concerns about the world's largest economy and kept investors sidelined. Concerns over a global credit crunch also continued after Moody's said on Monday it may cut its top ratings on US bond insurers Assured Guaranty Corp and Financial Security Assurance, the latest in a series of downgrades in the sector.
The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, was little changed at 540/545 basis points (bps), while the investment-grade index was also range-bound at 142/145. "Although US markets were flat yesterday, we are likely to see falls tomorrow given the weakness in some of the earnings results," said a Hong Kong-based trader.
"We are not seeing much activity today," he added. A disappointing set of earnings after Wall Street's close from American Express, Apple and Texas Instruments could lead to a rough session in US markets on Tuesday.
A heavy slate of US corporate earnings results is due this week, including United Parcel Service, Yahoo! and lender Wachovia Corp later on Tuesday. Asian stock markets fell, with the MSCI index of the region excluding Japan down 0.5 percent as of 0425 GMT.
Spreads in the region have widened since the start of June amid rising concerns about the global financial sector, as well as rising inflationary pressures and slowing economic growth. Sovereign credit default swaps (CDS), or insurance-like contracts that protect investors against defaults, were also range-bound across the region, amid low trading volumes.
Philippines' five-year CDS were flat at around 245 basis points. The country's central bank expects inflation to remain at double-digits this year before easing to a single-digit figure in the first quarter of 2009, its managing director Cyd Tuano-Amador told reporters on Tuesday.
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