Asian bond spreads weaken

Asian bond spreads were slightly wider on Thursday tracking weakness in regional stocks with ICICI Bank becoming the latest borrower to announce an issue in an unusually busy primary market. ICICI's issue also comes after a media report suggested India had plans to auction quotas for foreign borrowing by domestic companies, a speculation that was subsequently quashed by the country's finance secretary.
As developed markets are still grappling with recession and interest rates in their countries are at or near historic lows, funds have been flooding into faster-growing emerging markets, prompting some, including Brazil and Taiwan, to impose controls. The Asia ex-Japan iTraxx investment-grade index moved out to 105/109 basis points from Wednesday's 101/103 bps eyeing weakness in Asian stocks following doubts about the pace of the global economic recovery.
ICICI, India's second biggest lender, joined Philippine state agency PSALM which is also issuing dollar bonds to raise $600 million in the primary market which traditionally turns quiet as the year-end approaches. ICICI's 5-year credit default swaps were steady at 190 basis points while its bonds due in 2011 were unchanged at 102.75/103.25 cents on the dollar. Union Bank of India said it was planning to raise $500 million via medium term notes before March 2010.
These issuances come at a time when fund managers and other bond investors traditionally wind down operations, a slowdown which was expected to be repeated this year after a sizzling rally which has given investors solid returns. But mid-way through the last quarter of the year, issues of bonds denominated in dollars, euros and yen have raised nearly $13 billion in Asia ex-Japan.
This compares with the $47 billion raised in the first nine months of the year, averaging a shade under $16 billion each quarter. Meanwhile, Philippine bonds were steady despite the weakness in the broad market after the announcement the government had registered a budget deficit of 266.1 billion pesos which was less than some had expected.
The Philippines blew past its full-year official budget deficit target of 250 billion pesos just 10 months into the year but markets have already revised their expectations upwards to 300 billion peso as a weak economy hurt revenues. Philippines' 6.375 percent bonds due in 2034 traded steady at 98.875/99.375 cents on the dollar.