Asian sovereign and corporate bond spreads were rangebound on Thursday as caution over inflation dogged investors, although spreads in newly-sold bonds from GS Caltex and Rio Tinto tightened.
The Federal Reserve kept US interest rates unchanged on Wednesday, as widely expected, but it voiced greater concern over inflation at a time when central banks around the world are already tightening monetary policy.
The European Central Bank (ECB) is also on alert over inflation. President Jean-Claude Trichet on Wednesday played down the prospects for a series of interest rate rises, but cemented expectations for a hike in July.
"The (Fed) decision to leave rates unchanged was pretty much expected, but we still think they will hike rates at least once this year. The ECB is confirming it will raise rates, so that's affecting things as well," said a Hong Kong-based trader. The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, was unchanged at 530/540 basis points (bps), while the equivalent investment-grade index widened by 1-2 bps to 144/146.
Spreads in the region have widened since mid-May on concerns about inflation at a time of slowing global economic growth. Taiwan is expected to become on Thursday the latest country in the region to raise rates, with most economists forecasting the central bank will raise the benchmark discount rate by 12.5 bps to a seven-year high of 3.625 percent. Bonds from Titan Petrochemicals took a hit after the oil company said on Wednesday it plans to cut back on its Asian oil trading business and could soon sell the operation.
Though the sale could help Titan pay down debt, uncertainty about its strategy drove down the company's 2012 bonds to 51 cents to the dollar from 61.9 on Wednesday.South Korean oil refiner GS Caltex's newly-sold $300 million five-year bonds tightened by 3 basis points to 387 over Treasuries from the spread at which they were sold on Wednesday.