Asian bond spreads rangebound

Asian bond spreads were rangebound on Wednesday, as concerns about inflationary pressures from record oil prices, combined with lower regional equity markets, kept investors on edge for a second session.
Rising inflationary pressures from food and energy prices are raising expectations that central banks in the region will hike interest rates at a time when a slowdown in the global economy could hit earnings in the region's export-reliant sectors.
Philippine credit default swaps (CDS) remained flat at 199/207 basis points, after spreads had widened by some 20 basis points on Tuesday on expectations for an interest rate increase following data showing surging inflation.
Indonesia's CDS, or insurance-like contracts that protect against defaults or restructuring, were also rangebound around 235 basis points, after spreads widened on Tuesday. Spreads in Indonesia have widened amid expectations the country will sell $1.5 billion in bonds in June as well as on inflation worries.
Indonesia raised on Tuesday its key interest rate by 25 basis points to 8.25 percent and warned more hikes were possible as inflation could continue to climb when the government raises fuel prices. "The Philippines will also have to raise interest rates because inflation is so high," said a Hong Kong-based trader. The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion remained at around 440 basis points.
Asian credit spreads have tightened significantly, with the iTRAXX high-yield index down from a record above 650 hit in mid-March, following a recovery in global markets amid hopes the worst of the credit crisis is now over.
Indonesia's PT Truba Alam Manunggal Engineering Tbk set guidance for its sale of $100-150 million in three-year senior unsecured bonds at a yield of 17-18 percent, a source said on Wednesday, marking the first global high-yield debt issuance from Asia this year.
Both the firm and the notes were assigned last month first-time ratings of "B" by both Standard & Poor's Ratings Services and Fitch Ratings, five notches below their lowest investment-level grade. UBS is the sole manager of the sale. Meanwhile, investment-grade rated Korea Railroad Corp (KORAIL) set guidance for its sale of $300 million of five-year bonds at 160-170 basis points over midswaps, a source said on Wednesday.