Asian bonds steadied on Tuesday, halting recent steep losses as regional stock markets improved, and investors were watching out for potential new issues from Indonesia and others to gauge risk appetite in the new year.
High-yield bond spreads have widened by some 40-50 basis points so far in 2008 - after widening by almost 200 basis points last year because of the global credit crunch - as fears of a recession in the US economy have grown.
The widely followed iTRAXX Asia ex-Japan high-yield index was around 375/377 basis points (bps) on Tuesday, only slightly wider than 372/374 on Monday. "Right now, all eyes are on how the pipeline is going to be in terms of new issues and how big the appetite is for the new deals," said a trader in Hong Kong. Indonesia is to start a four-day global roadshow on Tuesday for an issue worth up to $2 billion.
The Philippines is also thought to be looking at a $500 million deal, while state-run lender Korea Development Bank is looking at a deal of up to $1 billion, market sources said. Indonesia's five-year credit default swaps - insurance-like contracts that protect against restructuring or defaults - were trading at a wide 177/197 bps after moving out in the past few sessions.
The Philippines' five-year CDS widened slightly to 181/188, although traders have said the country may opt to go ahead with its deal only after Indonesia has sold its bonds.
The Philippine finance department said last year it would borrow just $500 million from the overseas debt market in 2008, half of the originally planned $1 billion. Primary issuance of major-currency bonds in Asia excluding Japan - essentially debt in dollars, euros and yen - took a hit in the second half of 2007, with the $12.2 billion the weakest since the second half of 2002, according to Thomson Financial.