The cost of protection against Thailand's debt rose amid fears about political instability, while Asian bond spreads were flat on Wednesday amid continued caution about global economic growth and the financial sector. Thailand's five-year credit default swaps (CDS), or insurance-like contracts that offer protection against defaults or restructuring, widened by about 4 basis points (bps) to 132.
Protesters remained camped outside Thailand's prime minister office on Wednesday demanding his ouster from power. That raised investor concerns on a day in which the country's central bank meets. A Reuters poll shows eight out of 12 economists expect an increase in interest rates.
"With such political issues remaining in place and the potential of the economy suffering as a result, we maintain our view that the Thai sovereign CDS should underperform against other HG (high-grade) sovereigns in the region," said Lehman Brothers analysts in a note to clients on Wednesday.
Thailand's protests are the latest concern over political instability in Asia. Pakistan is facing a rupture in the ruling coalition, while Malaysian opposition leader Anwar Ibrahim won election to parliament this week and is expected to bid for power. Other concerns prevail as well, given the prospect of slowing economic growth in the region at a time of high inflation, and as the global financial sector continues to suffer losses.
Inflation worries resurfaced after oil prices rose for a third consecutive session to near $117 a barrel as Tropical Storm Gustav headed towards the Gulf of Mexico. The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, remained range-bound at around 560 compared to Asian trade on Tuesday, after widening overnight to as much as 570, according to a Hong Kong-based trader.
Korea Railroad sold $200 million in additional 2013 bonds on Tuesday in New York hours, pricing the offering at a yield of 5.9 percent, compared to the yield of 5.5 percent it had paid in May with its initial $300 million offering. The pricing was equivalent to 284.76 basis points over equivalent Treasuries, with KORAIL's bonds tightening to about 280 bps in the secondary market on Wednesday.