Asian bond spreads were range-bound on Monday as a recent slump in oil prices has eased inflation concerns though doubts still remained about the health of the global economy. A key measure of risk aversion, the iTRAXX Asia ex-Japan high-yield index, narrowed by several basis points (bps) to around 545 basis points, while the equivalent investment-grade index narrowed 1-2 bps to 141.
"It's a fairly muted market, with little to trade on. Some of the US data this week could provide some direction," said a Hong Kong-based trader. Expectations of slowing demand for crude had sent oil prices tumbling since they hit a record above $147 hit in mid-July, which could help relieve the inflationary pressures in the region.
But oil prices rebounded $1.21 to $114.98 as of 0400 GMT on Monday, as Tropical Storm Fay moved towards the Gulf of Mexico, though oil companies working in the area said offshore production was unaffected so far.
Trading is expected to remain quiet this week, though investors could focus on US housing data: the National Association of Home Builders' August Housing Market Index and July US housing starts on Tuesday. Asian bond spreads were range-bound across-the-board. Philippines' five-year credit default swaps (CDS), or insurance-like contracts that protect investors against defaults, little changed at 230 bps.
The low trading volumes this month have discouraged issuers from selling debt, though investment bankers note September could be very busy, especially in South Korea. "I can tell you we could be looking at atleast $2 billion in deals happening in early September. There are a lot of South Korean issuers looking to come in at the moment," said an investment banker for a major foreign lender in Singapore.