Thailand's credit spreads widened on Wednesday as anti-government protesters laid siege to Bangkok airport in a bid to oust the country's prime minister. But sentiment in the wider Asian market was underpinned by news of a $600 billion US Federal Reserve plan to buy debt and mortgage securities, raising hopes the package could revive the sagging US housing market and free up consumer lending.
Benchmark credit default swaps (CDS) - insurance like contracts that protect against defaults and restructuring - such as those on Indonesia and Philippines tightened. The Philippine 5-year CDS moved in by 10 basis points (bps) to 450/465 bps and the Indonesian 5-year CDS tightened 10-15 bps to 750/800 bps.
"Removing the illiquidity premiums from the GSE (government sponsored enterprise) market is a crucial and necessary step towards reducing mortgage rates and stimulating housing demand and refinancing activity," said Societe Generale economist Glenn Maguire. But Thailand's 5-year CDS moved out by 15 basis points (bps) to 285/315 bps.
That means it would cost between $285,000 and $315,000 to insure against $10 million of Thai sovereign debt. The spreads are still below the recent high of 530 bps struck in late-October. The benchmark Asia ex-Japan iTRAXX investment-grade index, a key measure of risk aversion, initially moved following the Fed news, but gave up its gains after Fitch downgraded its ratings on Toyota.
The index moved in by 10 bps to 375 bps, but later widened to 380/390 bps after Toyota's downgrade rattled sentiment in the corporate sector. Fitch lowered its rating on Toyota Motor Corporation to AA from AAA saying that the appreciation of the yen, a slump in all major auto markets and high raw material costs are hurting the carmaker's earnings and cash flow.
Toyota's 5-year CDS widened to 180/220 bps from 170 bps earlier. There were no quotes on Pakistan's CDS, dealers said but its 2009 bonds were quoted higher after the International Monetary Fund (IMF) approved a $7.6 billion loan for the South Asian country to help it avert a balance of payments crisis. The 2009 bonds were quoted at 90/100 cents to a dollar, compared with the earlier 88 cents. Dealers said there were no trades on Wednesday.