Asian risk premiums decline

Asian risk premiums fell on Friday, ending a volatile week by tracking a global stock rally ahead of a G20 meeting of industrialised and emerging nations aimed at tackling the world economic crisis.
Asian spreads ended the week tighter, though analysts cautioned against expectations for a sustained recovery given signs of a bleak outlook for the global economy, and amid uncertainty over whether the US Treasury can succeed in its massive bank bailout plan.
Data on Thursday showed US workers drawing jobless benefits hit a 25-year high this month, while imports to the world's biggest economy suffered a record fall in September. Elsewhere, Germany fell into recession in the third quarter, a report showed. "Beyond the stock market rally, the reality is that economic data remain dire," Calyon warned in a note to clients on Friday.
The Asia ex-Japan iTRAXX investment-grade index, a key measure of risk aversion, tightened by 10-20 basis points (bps) to 360 from New York's close, a Hong Kong-based trader said. That level is tighter than the 380 basis points at which the index was trading in Asian trade at the end of last week, and it remains well below a record just under 650 in late October.
However, concerns about the impact on Asia of a potential global recession continues to weigh on sentiment. Hong Kong will post third-quarter gross domestic product data later in the day. Economists expect the economy grew 2.6 percent from a year earlier in what would be its weakest pace in five years, but also saw a 50:50 chance the region slipped into recession.
"The weak data may remind market participants that the economic outlook remains challenging, and global market volatility is set to remain high going forward," Calyon said, referring also to other data due out on Friday. Still, sovereign credit default swaps (CDS) - or insurance-like contracts that protect against defaults and restructuring - tightened across the board.
South Korea's five-year credit defaults swaps (CDS) tightened about 20-30 bps to 350 after the government said on Friday it may draw up measures to help domestic banks boost their capital ratios if necessary. The announcement comes after South Korea on Thursday said it plans to offer $16 billion of foreign currency liquidity to help local exporters ease their dollar shortages and to set up a $7.2 billion bond fund for domestic companies.
Indonesia's five-year CDS tightened to about 760 basis points from about 800 in New York trade overnight after some of the concerns eased over the country's measure to shore up the struggling rupiah by tightening rules on buying foreign exchange.
Indonesian spreads have been among the worst performers in recent weeks amid concerns about its falling currency and its current account balance, among other factors. Southeast Asia's largest economy said on Friday it has enough foreign exchange reserves to guard against declines in the rupiah though it said its 2009 economic growth forecast of 6.5 percent was "no longer realistic."