Asian spreads narrow

Asian bond spreads narrowed from five-month highs on Wednesday on signs Europe was moving to help debt-burdened Greece. On the supply front, Mongolia is planning its first global bond sale of around $1 billion but investors will likely seek a higher premium than on those sold by the Philippines, Indonesia and Vietnam last month due to its lower credit rating, traders said.
The Asia ex-Japan iTraxx investment-grade index narrowed to 120/123 basis points (bps) from Tuesday's 133/135, which was the widest since September 4, 2009. Investors dumped riskier assets in the previous session on fears that Greece's debt problems may nip the budding global economic recovery.
The Thomson Reuters Index of Asia emerging credit was quoted at 219.18 on a simple average basis and at 158.35 on a weighted average, the highest since September 3, 2009. "Markets are nervous which means that not only are investors risk averse, but they are also seeking positive news to grab onto," said Scott Bennett, head of Asian credit at Aberdeen Asset Management. European governments have agreed in principle to rescue Greece, a senior German coalition source said.
Most cash bonds rebounded, while credit default swaps (CDS), the cost of insuring debt against default, narrowed from recent highs, traders said. Star Energy bonds due in 2015, sold last Friday, were up a quarter point at 99.50/100.50 cents on the dollar, traders said. BOC Hong Kong's 10-year bonds, sold last week, were traded at 211/218 bps over US Treasuries, down from 220/225.
Sovereign bonds from Indonesia and the Philippines also recovered. Indonesia's 10-year bonds were traded a quarter point higher at 100.25/100.50 cents on the dollar. The country's 5-year CDS tightened to 214 bps, after widening to as much as 240 on Tuesday, traders said.
The volatile market on Tuesday prompted Bank of India to defer its planned dollar bond issue, the second state-run Indian lender to do so. It may take a few more sessions for Bank of India, which planned to resume the sale once markets have stabilised, to issue the bonds, traders said.
Mongolia may have to pay more than what Vietnam, Indonesia and the Philippines did given that it's a first-time issuer in the dollar bond market with lower debt rating, traders said. The Philippines, Indonesia and Vietnam sold a total of $4.5 billion of dollar bonds last month. Another possible new issuer is South Korea's Woori Bank, which has sought proposals from banks for a dollar debt issue.