Asian bonds jumped on Wednesday after an emergency interest rate cut by the Federal Reserve, but investors said they were still nervous a US recession would hurt the region's economic prospects.
The Fed cut its federal funds target rate by three-quarters of a percentage point to 3.50 percent, the lowest level since August 2005, ahead of its meeting on January 29-30. The widely-followed iTRAXX Asia ex-Japan high-yield index - a key measure of risk aversion - tightened to 500-510 basis points (bps) from Tuesday's 523/533 bps, but off the day's tightest level of 485 bps.
"We saw a rally in the morning but it has widened since then, I don't think people are convinced," said a Hong Kong-based trader referring to growing fears about a recession in the United States.
Traders said most of the spread tightening was on account of the rally in the rates market - the benchmark US 10-year note now yields 3.42 percent, compared with 3.63 percent on Friday. US financial markets were shut on Monday.
In Asia, Philippine bonds due in 2032 were quoted at 97/97.50 cents to a dollar and its 2031 bonds were at 111.25/111.75, both higher by a quarter to half a point from Tuesday.
The Philippines' five-year credit default swaps (CDS) - insurance-like contracts that protect against default or restructuring - tightened by 20 bps to 240 bps. Mirroring some of the optimism was the strong rally in stocks in the region, with the MSCI index of stocks in the region excluding Japan up at 3.3 percent by 0300 GMT.