Asian sovereign and corporate bond spreads widened on Tuesday after Federal Reserve Chairman Ben Bernanke indicated inflation was becoming a priority, marking the latest indication that global interest rates are on the rise.
Spreads in newly-sold bonds from China Merchants Holdings widened as well, tracking the weaker market. Other Asian issuers are braving the weakening markets, with Indonesia going on a global road show for a bond sale expected to be worth $1.5 billion, while South Korean oil refiner SK Energy is marketing a $300-$500 million bond sale.
The iTRAXX Asia ex-Japan high-yield index a key measure of risk aversion, traded at 513/518 basis points (bps) about 25 bps wider than levels on Friday. Trading in the region had been quiet on Monday as Hong Kong, China and the Philippines were closed for public holidays.
"Obviously we are much wider, but at least we are not seeing any panic yet," said a Hong Kong-based trader. Philippines' five-year credit default swaps (CDS) were trading at 243/245 basis points, about 20-25 basis points wider than on Friday.
The weakening markets marred the recent trading debut of new bonds from port operator China Merchants, which raised $500 million in a two-tranche sale on Friday.
The Chinese port operator's five-year bonds were trading on Tuesday at 310 basis points over equivalent US Treasuries compared with the 289 bps spread at which they were sold. The new 10-year bonds were at 335 bps, wider than the 322 original price. However, the weakening markets have not deterred issuers from marketing new bonds.
Indonesia will meet investors in Asia, Europe and the United States on June 12-16 for a benchmark dollar bond offering, according to a term sheet on Tuesday, in a deal that had been previously expected to reach $1.5 billion. Indonesia's five-year CDS widened by about 20-30 basis points to around 472/475, a trader said.
SK Energy is in the midst of a two-day road show that will end in Hong Kong on Wednesday, with a source involved in the deal saying the oil refiner was looking to raise $300-$500 million.