Asian bond spreads widened on Wednesday, reversing some of the sharp tightening over the prior two sessions, on fears that recent measures announced by policy makers world-wide still won't avert a global recession.
Although investors in Asia believe the worst may now be behind, sentiment remains fragile amid concerns such as about slowing growth and worsening current account balances, according to a Reuters poll of analysts. The mood soured quickly even after unprecedented steps by global policy makers in recent days to contain a financial crisis.
The United States announced on Tuesday it will take equity stakes totalling up to $250 billion in top American financial institutions. "Reality is beginning to set back into markets following the euphoric rally at the beginning of the week," Calyon said in a note to clients on Wednesday.
Traders said the iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, widened by 20-30 basis points to 810, after tightening as much as 100 basis points on Tuesday alone. The equivalent investment-grade index moved out by 10 basis points to 260, giving up some of the 50 bps tightening seen on Tuesday, traders added.
Asian spreads surged on Friday amid a week-long heavy tumble in equity markets world-wide. Though spreads have recovered somewhat this week, investors are now refocusing on the weakening outlook for the global economy, analysts said. South Korea's five-year credit default swaps (CDS) - insurance-like contracts that protect against defaults - widened by about 15 basis points to 265.
Indonesia's five-year CDS widened by about 35-50 basis points to 715. Spreads had surpassed 800 bps on Friday amid concerns Southeast Asia's largest economy would suffer because of its current account deficit and declining exports of commodities, among other factors.