Asian bond spreads tightened on Friday amid growing expectations the Federal Reserve will not raise US interest rates yet due to signs of tamer-than-expected inflation in the world's largest economy. But Pakistan's credit default swaps (CDS), insurance-like contracts that protect investors against default or restructuring, widened by some 50 basis points to 500/600, a trader said.
Standard & Poor's Ratings Services cut Pakistan's long-term foreign currency debt rating by a notch to B on Thursday. Expectations of a flood of new issues kept spreads in the region from tightening too much, with Export-Import Bank of Korea's (KEXIM) newly sold, 750 million euro ($1.16 billion), five-year bonds tightening by several basis points.
The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, narrowed by around 20 basis points (bps) to 430 basis points (bps), according to dealers.
On the other hand, Malaysia's five-year CDS showed little reaction after S&P cut its outlook on the country's foreign currency rating of A-minus to "stable" from "positive", remaining range-bound at 60/63. S&P cited heightened political uncertainty after recent elections as the factor behind its decision.
The new euro-denominated bonds from South Korea's KEXIM tightened to as much as 176 over the OBL (Obligationen) and last traded at 179, compared with the 182.5 basis points over the measure of German government bonds at which it was sold. The issue was only the second euro-currency bond from an Asian issuer this year, and matched the largest euro bond sale from Asia, a 750 million euro issue from Korea Development Bank in March 2007.
The deal received 1.4 billion euro in orders. Meanwhile, Indonesia's PT Truba Alam Manunggal Engineering Tbk is still looking to price $100-150 million in three-year senior unsecured bonds at a yield of 17 to 18 percent.