Asian bonds fall

Asian bonds dropped further on Wednesday as investors took fright at a fall in a US service sector index to its lowest level since the 2001 recession. Markets are already edgy about troubles in the $2.4 trillion bond insurance industry, where rating agencies are deciding on downgrades, which could mean an additional $70 billion of write-downs for financial institutions.
The US Institute for Supply Management's index of non-manufacturing plummeted to 41.9 in January from 54.4 in December, its largest monthly decline on record and a far lower figure than the 53.0 expected by Wall Street.
"The mountain of evidence that the US is tipping into recession grew from the downside surprise in ISM services data," said Brett Williams, a credit analyst with BNP Paribas.
The widely followed iTRAXX Asia ex-Japan high-yield index - an important indicator of risk aversion - widened by around 25 basis points to 515/520. It is at its widest since the emergency rate cut by the US Federal Reserve two weeks ago.
A warning by Fitch Ratings about the possibility of a downgrade of bond insurer MBIA added to the gloom. Although some bond insurers have already been downgraded, decisions are still awaited from Moody's Investors Service and Standard & Poor's on the two largest insurers, MBIA Inc's MBIA Insurance Corp and Ambac Financial group's Ambac Assurance Corp.
Philippine bonds were an eighth to a quarter of a point lower but there was little fallout from political developments in the south-east Asian country, where a former ally of President Gloria Macapagal Arroyo was ousted as speaker of the lower house.
Bonds due in 2032 were trading at 97.625/98.125 cents to a dollar. The 2031 bonds were at 111.75/112.25. New bonds from Korea Midland Power Co (KOMIPO) were marginally higher as investors showed a preference for investment-grade debt. The 2013 bonds were trading at a spread of 255/250 basis points (bps) above US Treasuries compared with the overnight 260/255 bps.