Asian spreads widened slightly on Friday to come off two month lows, as risk averse investors locked in gains ahead of the year end. A weak end to Wall Street and the strength of the dollar were cited as the primary triggers for the losses in Asian credits but traders said the aggression of the selloff was muted due to thin activity.
The Asia ex-Japan iTraxx investment-grade index widened slightly to 99/104 basis points (bps) from 96/99 bps. The Thomson Reuters Index of Asia emerging credit was quoted marginally wider at 179.05 bps, but is down from a peak of 197 bps during the Dubai credit crisis.
"People are crystallising their profits before the end of the year and some weakness is also due to the equity movements," said a Manila-based trader. Philippine bonds due in 2020 were the most active. They eased to 108.125/108.375 cents on the dollar from the previous 108.375/108.50.
US stocks fell on Thursday as a rise in the dollar to its highest level in more than three months spurred safe-haven trade to take cash away from shars. An earnings downgrade on financial sector shares by an influential analyst provided a further drag.
"Stocks and the dollar will set the tone. The dollar has an inverse relation with stocks and there is a lot of dollar funded carry trade which will be unwound if the dollar remains strong," a Singapore-based trader said. The Philippines, Asia's most frequent borrower, is lining up a new debt issue in January.
The government is likely to issue debt in euros rather than in dollars, the conventional currency, because a similar denominated bond is maturing in February 2010, a government source said on Friday. January is expected to be a busy month for bond issuance as governments rush to take advantage of low interest rates. An advantage over local currency bond issuance is expected to continue as central banks around the region tighten monetary policy while rates in developed nations stay low.
"The longer the Fed stays on hold, the funding advantage of a dollar issuance compared with Asia will increase," said Viktor Hjort, credit analyst with Morgan Stanley. "The next 6 months can be expected to be constructive with healthy issuance activity."
New debt issues have seen a late spurt in volumes this year taking the total offered amount by borrowers in Asia outside Japan in dollar-,euro- and yen-denominated bonds to a record high of $62.86 billion, Thomson Reuters data shows. This compares with 2008 volume of $25.4 billion.
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