Asian bond spreads tightened on Monday helped by easing concerns over inflation as oil prices came off the boil, while the cost of insuring Thai debt fell on hopes of reduced political tension. The iTRAXX Asia ex-Japan high-yield index tightened by 5 basis points (bps) to 550, while the equivalent investment-grade index moved in by 3 bps to 142, a Hong Kong-based trader said.
Despite the widening in the Asian high-yield index since late May, it has outperformed the European equivalent, with the iTRAXX Crossover index widening on Friday to 571. Brett Williams, an analyst at BNP Paribas, attributed the divergence to "increased investor nervousness over European corporates' debt servicing capability" in a note to clients on Monday.
By contrast, the investment-grade Markit iTRAXX Europe index traded on Friday at 97.5, well below the level of protection against similarly-rated credit in Asia. Williams recommended investors sell protection in Asia and buy protection in Europe to take advantage of the difference. The mood in Asian markets improved on Monday after oil prices dropped on Friday by nearly $5 to a three-month low of $114.90, as investors fretted about reduced global demand for crude.
Thailand was one of the outperformers on Monday, with its five-year credit default swaps (CDS) tightening by as much as 5 basis points to 115 on hopes of reduced political tension due to speculation about a return to exile by ousted prime minister Thaksin Shinawatra. Few deals are also expected. There was only one worth $100 million this month in the G3 sapce - dollars, euro or yen - compared with $894.6 million in the same month of 2007, data from Thomson Reuters show.
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