Philippine bonds extended losses and the cost of insuring the country's debt grew more costly on Friday as investors remained concerned about the government's massive financing needs and the sluggish economy. Weak equities markets also curbed investors' appetite for riskier assets in general.
The Asia ex-Japan iTraxx investment-grade index was quoted at 110/114 basis points compared with Thursday's 104/108 bps. Newly sold bonds from South Korea's National Agriculture Co-operative Federation (NACF) also fell as investors took profits after a rally which followed strong demand for the paper. Its bonds due in 2014 were quoted 3-4 bps wider at 255/252 bps over US Treasuries.
The bonds had tightened significantly compared to the issuance spread of 268 bps over after the $500 million deal received $4.3 billion in orders. The Philippines, one of Asia's most prominent sovereign debt issuer, saw its bonds continue sliding as the country's imports registered their worst fall in three months.
The Philippines' 6.5 percent bond due in 2020 was trading at 107.25/107.75 cents on the dollar compared with the previous 107.625/108.00. It has fallen from Wednesday's 107.875/108.25, its highest since the debt was sold in July. The country's five-year credit default swap (CDS) widened 3-4 bps to 167/175 bps. The bonds have been weak ever since the government said it is considering suggestions to issue global bonds this year.
This will be the third time this year that the Philippines, one of Asia's frequent debt issuers overseas, will tap the global debt market to help fund the budget deficit. The government sold $1.5 billion of bonds in January and $750 million in July. Worries about the country's fiscal position have been compounded after finance chief Gary Teves said Manila has less room to meet its 250 billion peso fiscal target this year due to weak revenue. The country's deficit hit 210 billion pesos, 84 percent of the full-year goal, in the first 8 months of the year.
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