Asian bond spreads narrow

Asian bonds firmed on Wednesday after a three-day slide, lifted by better-than-expected US home sales data that raised hopes the market at the centre of the global financial crisis may be close to reaching a bottom.
The Federal Reserve's extension of its programme designed to keep money flowing in financial markets world-wide, and indications that the US Congress is moving closer to pass President Obama's nearly $900 million stimulus package, also brought investors back to risky assets, traders said.
"There is a positive tone in financial markets today as shown by the rebound in the equities markets," a bond trader said. "Risk aversion has somewhat returned overnight after some positive economic news in the US" The Asia iTRAXX investment-grade index excluding Japan, a key measure of risk aversion, narrowed 10 basis points to 350/360, traders said. The index has widened by about 40 basis points in the previous three sessions.
Asian credit default swaps (CDS) - or insurance-like contracts that protect investors against defaults or restructuring -were also tighter, though caution remained amid expectations of new issues from Indonesia and the Philippines' San Miguel Corp. Indonesia's five-year CDS were 15 basis points tighter at 580 basis points, a credit analyst said, as the market has largely priced in Jakarta's planned global bond issue, expected in the next few days.
"It is difficult to judge how much Indonesia can issue, but it may be around $500 million to $1 billion," the analyst said. "There is still good demand for emerging market bonds, but pricing will be the main concern for investors." Jakarta is selling bonds to fund an expected bigger budget deficit this year as the government pledged to raise spending to stimulate the economy.
Meanwhile, the Philippines' five-year CDS, narrowed to 370 basis points from 400, a Manila-based trader said. The beer making unit of the Philippines' food and drinks group San Miguel plans to raise about $815 million in bonds denominated in pesos, dollars, or both, before the end of March.
Elsewhere, South Korea's five-year CDS, also tightened 10 basis points to 322, after the Fed extended its currency swap lines with Seoul and 12 other countries to the end of October. The swap arrangements are supposed to end on April 30.