Asian bond spreads widen

Asian bond spreads widened slightly on Friday after the Federal Reserve's surprise move to lift an emergency lending rate, but the Philippines outperformed after the 2009 budget gap came within expectations. The Asia ex-Japan iTraxx investment-grade index widened 3 basis points (bps) to 118/120, traders said. The Thomson Reuters Index of Asia emerging credit was quoted at 208.14 on a simple average basis and at 147.98 on a weighted average.
"There has been slight selling pressure," said Brayan Lai, credit analyst at Credit Agricole CIB. "It's just a bit of a knee-jerk reaction. We're not going to see an increase in the base rate thus far, but it leads us to believe that extraordinary exit strategies are going to be implemented faster than expected."
The Fed on Thursday raised the discount rate it charges banks to 0.75 percent from 0.5 percent, its first rate move since December 2008. Sovereign credits from the Philippines, one of Asia's frequent debt sellers overseas, were well bid, supported by dollar liquidity in the domestic market, traders said. The country's 10-year bonds were traded at 105.875/106 cents on the dollar from 105.75/105.875 on Thursday.
Also boosting sentiment on Philippine bonds was the release of the budget gap for 2009, which came slightly below the market's 305 billion peso estimate, traders said. "The government has been indicating a 300 billion peso deficit for 2009, so there was not much surprise there," said Yang-Myung Hong, credit analyst at Nomura International.
"It's also a reflection of domestic investors stepping into the dollar bond market. There is a lot of dollar liquidity in the domestic market." Philippine banks were flushed with dollar funds as remittances from Filipinos working abroad remained up despite the sluggish global economy. Latest government data showed that remittances totalled $17.3 billion in 2009, up 5.6 percent from the previous year and slightly higher than the central bank's $17.1 billion estimate.
In the corporate sector, recent issues were slightly weaker, tracking the broad market, traders said. Bank of China's 2020 bonds were traded 2 bps wider over US Treasuries at 213/216 bps, while Evergrande Real Estate's 2015 bonds fell to 97.75 cents on the dollar from 98 in the previous session, traders said. After a string of deals in the first week of this month, which saw new bond sales from Star Energy, New World Development, Korea Development Bank, the primary market remained quiet.