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Asian dollar bond spreads widened slightly from eight-week lows on Tuesday as investors turned cautious ahead of a US Federal Reserve meeting and an expected resumption of new issue supplies. Vietnam, whose rating was placed on watch negative by Fitch last Friday, and Philippines, which reported January deficit numbers that disappointed some analysts last week, were among those facing selling pressure.
Newly sold bonds remained steady but off their highs as investors braced for new debt offerings from issuers such as Indian lenders ICICI Bank, Bank of Baroda and Bank of Baroda and a clutch of Indonesian and South Korean borrowers. "The market looks a little weaker in terms of sentiment. We had such a big run-up and now some profit-taking is coming in," said AA Singapore based trader.
The Asia ex-Japan iTraxx investment-grade index was a touch wider at 92/94 basis points, just off the 8 week lows struck on Monday. The index has now tightened nearly 40 bps from the year's high struck in early February. The Thomson Reuters Index of Asia emerging credit was quoted at 180.68 on a simple average basis and at 115.44 on a weighted average basis.
CLP Power Hong Kong Ltd which sold 10-year dollar bonds last week at a spread of 115 basis points over comparable US Treasuries, were trading unchanged at 101/99 bps over. They were dealt at a low of 96 bps on Monday. But bonds from Philippines were weaker as some analysts expect the government to borrow more from the global market amid fears Manila may not be able to meet its budgetary forecasts.
Philippine bonds due in 2020 were an eighth of a point weaker at 108.25 cents on the dollar and its 5-year credit default swaps (CDS) were quoted at 150/160, marginally wider. Vietnam's CDS, which has been underperforming its peers, is under additional pressure after Fitch Ratings placed its long-term foreign and local currency ratings on watch negative on waning confidence in the country's currency and a lack of transparency for key economic data.
It was quoted at around 246 bps, 10 bps wider since the Fitch announcement. Vietnam's CDS has been underperforming other BB-rated sovereigns in the region like Indonesia and Philippines since the start of the year. Indonesia has seen its CDS tighten after Standard & Poor's raised its foreign currency debt rating by a notch to BB or two notches below investment grade.
"As a result of the two rating actions, we believe Indonesia should continue to outperform the Philippines in both cash and CDS and Vietnam should continue to underperform its two EM Asian peers," said Nomura International in a note. It said the differential between Vietnam and its peers Indonesia and Philippines should widen by another 50 bps.

Copyright Reuters, 2010

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