Indonesian bond prices tumbled on Thursday ahead of the launch of a new issue of up to $2 billion that could come later in the day and that is expected to offer a substantially higher yield than existing Indonesian debt.
Traders said Indonesia had discussed selling a 10-year tranche at a yield of 6.95 percent and a 30-year tranche at 7.75 percent, which they estimated at roughly half a percentage point higher than comparable bonds from the country.
Indonesia's 2017 bonds fell to around 100/102 from 104.125/105/125 on Wednesday, while its 2037 bonds fell to 89/90 cents to the dollar from 95.375/96.375, one trader said.
"We are seeing a lot of sellers because of these whispers that the new bonds will offer a decent concession," said a Hong Kong trader. Bonds from the Philippines, rumoured to be considering a sale of $500 million in dollar-denominated debt, also tumbled.
The country's five-year credit default swaps - insurance-like contracts that protect against restructuring or default - widened by about 10 basis points to around 190.
Indonesia is in the middle of a four-day roadshow for its bond, set to end on Friday. Analysts and bankers say the Indonesian deal could be crucial in setting the tone this year, since it would indicate how willing investors are to put riskier new issues in their portfolios.
Asian bonds have continued to tumble this year, extending the weakness seen in the second half of 2007 amid concerns about a slowdown or even a recession in the United States.
Spreads widened on Thursday after Goldman Sachs said a day earlier it expected a US recession this year, predicting the Federal Reserve would slash its benchmark rate by an additional 1.75 percentage points to 2.5 percent.
The widely followed iTRAXX Asia ex-Japan high-yield index moved out by around 10 basis points (bps) to 388/392, about 50-60 bps wider than at the end of last year. High-yield bond spreads in the region had already widened by almost 200 bps in 2007, underlining the risk aversion that is gripping investors in Asia.
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