Asian bonds may extend their gains in the next three months, after posting sharp increases this quarter, on optimism that the global economy is healing, helping spur investor demand for Asia's riskier debt. The Asia iTraxx investment-grade index excluding Japan narrowed by 7 basis points (bps) to 183/193 on Tuesday, capping a month that saw it narrowing to its lowest level since early September on June 2.
For the second quarter, the index has tightened by about 160 bps, traders said. "We will see a steady tightening in the spreads. What will happen is, as economic data continue to break on the upside, risk appetite will continue to improve and that will drive credit spreads tighter," a Singapore-based credit analyst said. Unlike US or Japanese government debt, most Asian bonds are seen as riskier assets that benefit from improved risk appetite.
Gains in Asian stocks on Tuesday and on Wall Street overnight helped lift debt demand, traders said. An analyst in Hong Kong expects more debt issues in the next quarter but he cautioned against expecting another rally. "We are not going to see a massive tightening of the spreads in the next quarter, mainly because most investors will be out for their summer holidays." The MSCI index of Asia Pacific stocks outside Japan was up 1 percent as of 0401 GMT.
Following are the major movers in cash bonds and credit default swaps (CDS): Philippines' cash bonds were little changed, with the country's 8.375 percent debt due in 2019 trading at 115.50/115.75, as investors remained concern about how the government will fund its expected record budget deficit this year, Manila-based traders said. The nation's five-year CDS was flat at 215/230 bps, traders said.
South Korea's five-year CDS narrowed by 5 bps to 175/188, tracking the performance of the broader market. Vietnam's five-year CDS was steady at 310/325 bps, traders said. Fitch on Tuesday affirmed its foreign currency rating on Vietnam, but lowered its local currency rating to BB-minus from BB.
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