Asian bond spreads widened on Tuesday as a slump in oil prices to three-month lows sparked concerns over a weaker global economy, with caution also in place ahead of the Federal Reserve's meeting later in the day. The iTRAXX Asia ex-Japan high-yield index a key measure of risk aversion, widened by about 10-15 basis points (bps) to 550 bps, while the equivalent investment-grade index widened by 4-5 bps to around 140.
Regional spreads have steadily widened since late May as a credit crunch continues to haunt the global financial sector a year after problems surfaced, while signs of a slowing global economy have further intensified risk aversion. Still, spreads are far off record levels. The iTRAXX high-yield index is well below the record above 650 in mid-March in the run-up to the rescue of US investment bank Bear Stearns.
"Mounting evidence of moderating economic growth is squeezing the speculative premia out of commodities," said Brett Williams, a credit analyst at BNP Paribas in an email to clients. Investors also remain cautious ahead of the Fed's meeting on Tuesday.
The cost of protection against a default in Indonesia's debt widened, with five-year credit default swaps (CDS) out by 3 basis points to 245, just ahead of a central bank meeting that is expected to result in a 25 bps hike in interest rates to 9 percent. Philippines' five-year CDS widened by about 10 basis points to 234 after data showed on Tuesday annual inflation hit a near 17-year high of 12.2 percent in July, above central bank and market expectations.
Debt from Chinese property firms were among the decliners in cash bonds as investors bet on a deteriorating outlook due to the costs associated with investment projects in the sector. Hopson Development Holdings' 2012 bonds were quoted at 57/52 cents to the dollar, extending a decline after Moody's changed on Friday its outlook on the firm's Ba3 rating to negative from stable.
Elsewhere, Hynix Semiconductor Inc's 2012 bonds weakened slightly to 89/90 cents to the dollar after Moody's changed its outlook on the South Korean chip maker's Ba2 rating to negative from stable due to weakening liquidity and operating performance.