The risk premium for top Indian lender State Bank of India rose on Thursday, reflecting investor anxiety after deadly attacks by gunmen in Mumbai and contrasting with lower protection costs for most other Asian debt.
The attacks in Mumbai come amid a resurgence of political risk in the region. In Thailand, pressure built on the country's military to intervene in a political crisis that is threatening to descend into widespread civil unrest.
Analysts view Thailand as posing the bigger risk than India given that the intensifying standoff between Prime Minister Somchai Wongsawat and protesters seeking his ouster is creating uncertainty at a time when the economy is struggling.
"India is still seen as an isolated incident. We are seeing a knee-jerk reaction for sure, but I don't think it poses a systemic risk to the rest of the region," said a Singapore-based fund manager for a major asset management firm.
"The uncertainty in Thailand is escalating, and it could be more of a concern. Still, it hasn't affected the whole Asian market," he added, declining to be identified because he's not authorised to talk to the media.
The State Bank of India saw its five-year credit default swap (CDS) widen 20 basis points to 440 after the attacks. The state-run lender is seen as a proxy for India's sovereign credit given the country has no overseas bonds.
The price for the CDS, an insurance-like contracts that protect investors against defaults or restructuring, means investors need to pay $440,000 to protect against a default for a year on $10 million of SBI's underlying debt.
Meanwhile, Thailand's 5-year CDS moved out by about 5-10 bps to 300 and has now widened some 30 bps since the protests in the Southeast Asian country intensified on Tuesday.
"Its interminable, slow-motion crash to the bottom with shuttered airports will leave permanent scarring in the capital, trade, and investment accounts," Brett Williams, a credit analyst at BNP Paribas, wrote in an email to client regarding Thailand.
"Rating pressures - along with disgust - mount. Prospects for a non-violent denouement and an optimistic reconstruction of the Kingdom's political, social, and educational institutions grow vanishingly small by the hour," he added.
Asian spreads elsewhere tightened, benefiting from stronger regional equity markets and China's hefty interest rate cut on Wednesday.
The benchmark Asia ex-Japan iTRAXX investment-grade index, a key measure of risk aversion, tightened for a fourth consecutive session, moving in by 10 bps to 355 bps. The equivalent high-yield index tightened by 25 basis points to 1,250.
J.P. Morgan and Morgan Stanley sold more than $11 billion of debt on Wednesday, following Goldman Sach's sale, showing more US banks tapping a US government programme that guarantees their debt.
But debt sales in Asia remain frozen, given that credit spreads have surged and not all countries in the region have implemented similar guarantees. China's five-year CDS moved in by 8-10 bps to 160, after the central bank on Wednesday cut benchmark rates for one-year loans and deposits by 1.08 percentage points, marking its fourth interest rate cut since mid-September. The Philippine 5-year CDS moved in by about 30 basis points to 370 after data showed the economy grew at a stronger-than-expected pace in the third quarter from a year earlier.
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