Asian bonds edged higher on Wednesday helped by improved risk appetite as regional stock markets gained and after the Federal Reserve lifted expectations of more interest rate cuts. That led to tighter spreads on Chinese property company bonds which have witnessed a blowout in recent weeks following a convertible bond offering from Country Garden Holdings.
"There is a little firmer tone because of the Fed's comments on risks being more towards growth than inflation," said Tim Condon, chief economist with ING Financial Markets in Singapore, adding that upbeat news on bond insurers also provided a fillip. Federal Reserve Vice Chairman Donald Kohn, in a speech on Tuesday, reinforced market expectations the US central bank would have to cut interest rates further to support growth.
In New York, Moody's Investors Service on Tuesday ended its immediate threat to cut the top "Aaa" rating of MBIA Inc's insurance unit, staving off the prospect of more bank losses and market declines. In Asian trade, the popular iTRAXX Asia ex-Japan high-yield index - an important measure of risk aversion - moved in to 537/550 basis points (bps) from Tuesday's close of 556/562 bps.
Traders said a lot of the day's activity was focused on the Chinese property sector, which saw severe losses in recent weeks over concerns their cash flow would be stifled as a result of monetary tightening in China affecting home sales.
"In general, the CDS market was pricing in too much of a default possibility," said a Hong Kong-based trader. "A credit default swap of 1,000 basis points indicates a 60 percent default probability and that is way too high for the sector," she said.
Shimao Property Holdings' five-year credit default swaps, or insurance-like contracts that protect against defaults of restructuring, moved in to 1,000 bps from 1,050 bps. It had traded as high as 1,400 bps last week. Its cash bonds also rose in sympathy. The bonds were quoted at 75/80 cents to a dollar from Tuesday's 77/78.
Among other high-yield names, Singapore-listed commodities trader Noble Group's bonds rose and the cost of insuring its debt fell after it announced a 92 percent jump in its 2007 net profit. Its five-year CDS moved in by 10 bps to 370/420 bps. Its shares surged nearly 18 percent.
Bonds from the Philippine rose slightly despite political challenges faced by President Gloria Macapagal Arroyo, who is under pressure to step down after allegations of kickbacks in a government telecoms deal. Its bonds due in 2032 were quoted at 96.375/96.75 cents to a dollar from the previous 96/96.375.