Asian bonds leapt on Wednesday after a strong response to a Lehman Brothers share sale and following capital infusion plans by other institutions that evoked investor confidence in the financial sector. On Tuesday, Wall Street firm Lehman Brothers raised $4 billion after the sale attracted four times the initially planned $3 billion offer.
Swiss bank UBS said it planned to raise $15 billion through a rights issue while struggling lender Thornburg Mortgage said it obtained $1.35 billion in an effort to stave off bankruptcy. "The upside surprise in US manufacturing data and successful alms collections by UBS and Lehman were the primary drivers behind the shift in sentiment," said Brett Williams, credit analyst with BNP Paribas.
The Institute for Supply Management said its index of US national factory activity edged up in March and beat expectations. In Asia on Wednesday, the iTRAXX Asia ex-Japan high-yield index - a key measure of risk aversion - tightened by 20 basis points (bps) to around 590 bps.
Traders said most of the buying was in credit default swaps (CDS) - insurance-like contracts that protect against defaults and restructuring - with investment grade names outperforming the junk-rated credits. China's 5-year sovereign CDS traded as tight as 68 bps and Korea's 5-year CDS was quoted at around 85 bps, both tighter by 5 bps.
Non-investment grade Vietnam's 5-year CDS moved in by 3 bps to 207 bps. While investors drew comfort from US data, a second batch this week that was not as dire as had been forecast, there was caution ahead of Federal Reserve Chairman Ben Bernanke's testimony on the US economy before Congress on Wednesday.
"I would still sell on any rally," said a Manila-based trader. "There is the non farm payroll out on Friday and so I think it is a good time to take profits on any upticks."
Meanwhile, bonds from the Philippines, the most active sovereign issuer in Asia ex-Japan, edged higher in line with the broad market while its CDS spreads tightened. Bonds from Manila due in 2032 were at 97.25/97.50 cents to a dollar and bonds due in 2031 were at 112.25/112.5, both higher by a quarter of a point. They had risen by as much as half a point from their New York closing levels. The Philippine 5-year CDS contract moved in to 225/235 bps from 235/240 bps. Quotes were wide, reflecting the volatile mood of the market.