Asian bond spreads weaken

Asian bond spreads widened on Friday as weak global economic data and disappointing corporate earnings world-wide reinforced expectations for slowing growth at a time of surging inflation.
The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, widened by 20 basis points (bps) to 540, while the equivalent investment-grade index widened 10 basis points to around 140. Spreads in the region have been hit by intense volatility this month following the financial woes at US mortgage lenders Fannie Mae and Freddie Mac, as well as the failure of US lender IndyMac Bancorp.
Still, the iTRAXX high-yield index remains well below the record above 650 hit in March, and below the monthly high of 580 hit on July 8. "Credit markets have been outperforming equity markets. A big part of it is that people have already bought protection throughout earlier this year in anticipation that things would stay rough," said a Hong Kong-based trader.
Sovereign spreads widened, with Malaysia's five-year credit default swaps, or insurance-like contracts that protect investors against defaults, out by 7 basis points to 107 ahead of the central bank policy meeting later in the day.
In the corporate space, Shimao Property Holdings bonds fell about one point after Moody's on Thursday downgraded the property developer to junk, citing a weakening balance sheet, and doubts about how it will finance its maturing debt and capital spending.
Moody's cut Shimao by one notch to Ba1 from its prior investment-grade rating of Baa3. Shimao's 2016 bonds dropped a point to 64 cents to the dollar, while its 2011 bonds fell by a similar amount to 71. The volatility is raising the prospect that Aisan issuers will continue to hold off from selling new bonds, though some may try.
Hong Kong & China Gas is due to meet investors in Asia on Friday, in a roadshow that will conclude on Wednesday after stops in London and the United States. POSCO Engineering & Construction, a unit of South Korean steel maker POSCO met investors in Singapore and Hong Kong this week as part of a non-deal bond roadshow as well.