Asian bonds ended the year on a steady note on Monday, with traders expecting a revival in activity in 2008 to be prompted by new supplies, but worries about the US economy remained a major concern for investors.
The widely followed iTRAXX Asia ex-Japan high-yield index was steady at 334/336 basis points (bps), and the J.P. Morgan Emerging Markets Bond Index Plus widened by 5 bps to 237 bps, with the index returning 6.3 percent for the year. Few trades were reported as most trading desks remained thinly staffed at the end of the year.
The cost of insuring Pakistan's debt remained steady as the South Asian nation waited for a decision on whether polls would go ahead in January. The country was plunged into crisis last week after the assassination of opposition leader Benazir Bhutto. Major cities in Pakistan said some normalcy had returned on Monday as banks and shops rolled up shutters and cars and motorbikes returned to the streets.
Pakistan's five-year credit default swaps were quoted at 500/535 bps, but traders reported no deals. Elsewhere in the bond market, the mood remained edgy after last Friday's data showed a slowing housing market in the United States, Asia's most important export destination.
Sales of new, single-family US homes fell much more than expected in November to their slowest annual pace in more than 12 years. In Asia, benchmark bonds from ports-to-telecoms conglomerate Hutchison Whampoa Ltd due in 2033 were unchanged at around 190 bps over US Treasuries.
In 2007, the Indonesian coal mining sector was a clear winner for bond investors, analysts said. "The coal mining sector in Indonesia has been the outlier this year in the high-yield sector by virtue of soaring coal prices," said a Hong Kong-based analyst.
"A lot of these names have also been deleveraging stories over time. Reasonable structures and protection have kept the sector in favour," he said. Analysts expect the first half of 2008 to be marked by caution and safe-haven purchases.
"The theme for 2008 will be skewed towards higher-quality names in the first half. As the year progresses and liquidity improves, one would expect financials to perform," said a trader based in Hong Kong. He said high-yield names such as those in the Chinese property sector, trading at around the widest this year, would also perform well in 2008.