Asian bonds were slightly lower on Monday as resurgent oil prices revived fears that inflation would force many central banks in the region to tighten monetary policy which could slow growth. But trading activity was muted ahead of a local holiday in Hong Kong on Tuesday and the US Independance Day holiday on Friday.
The iTRAXX Asia ex-Japan high-yield index a key measure of risk aversion, was quoted at 560/565 basis points (bps), compared with Friday's close of 547/552. The investment-grade index was at 157/160, wider than the previous close of 151/154. "It is because of oil stoking inflation, risk aversion as well as weak equity markets," said a Manila-based trader.
Oil prices hovered near all-time highs amid tensions in the Middle East. Oil supply concerns were already heightened when Libya's most senior oil official said last week he was studying the possibility of cutting output in response to US threats to sue Opec members.
Rising oil and food prices coupled with sluggish economic growth are making markets concerned about their impact on corporate earnings. "The books close today on a brutal operating interim, so after the next 15 to 30 days we'll be grinding through unusually mixed results from financials and corporates; anxiety over which should exert downside pressure on valuations," said Brett Williams, credit analyst with BNP Paribas.
Vietnam has been a vulnerable spot in the region. The central bank widened the currency trading band amid rising selling pressure on the Vietnamese dong stoked by a ballooning trade deficit and double digit inflation. The country's five-year credit default swaps (CDS) - insurance like contracts that protect against defaults and restructuring - is trading at 310/340 bps compared with Friday's 320/330 bps.
Bonds from the Philippines, one of the most active issuers in the region, also fell as investors worry annual inflation will hit double digits in June. Earlier this month, its central bank raised benchmark interest rates by 25 basis points, the first increase in nearly three years. The Philippines' 2031 bonds were quoted at 104/104.50 cents to a dollar and its 2032 bonds were at 91.25/91.75, both down by half a point.
Its 5-year CDS moved out by 2-3 bps to 263/270 bps. Meanwhile, brutal market conditions have not deterred some borrowers from planning debt issues. Singapore's microchip packaging firm STATS ChipPAC concluded in the United States on Friday a week-long roadshow for a bond deal that market sources have put at up to $1 billion.