Asian bond spreads widened for a third straight session on Thursday, as grim US and Japanese data highlighted the threat of a prolonged global recession, while fears of massive losses hounded the world's major banks.
South Korea's credit default swaps (CDS) - or insurance-like contracts that protect investors against defaults or restructuring - widened for the first day in three sessions after a high-ranking government official expressed doubts about meeting the central bank's growth forecast for this year.
"There has been a set of grim economic data and bleak outlook on banks coming from around the world. Whenever you see grim data, you worry about how much more the global economy will contract and for how long," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.
The Asia iTraxx investment-grade index excluding Japan, a key measure of risk aversion, widened to 325/335 basis points from 302/330 on Wednesday, a Hong Kong-based trader said. Bank of America's dire situation as it struggled to absorb Merrill Lynch & Co, requiring fresh aid from the US government, further spooked investors. "We expect more widening of the spreads as equities tank and US earnings weaken," said another trader.
South Korea's five-year CDS widened by as much as 60 basis points to 335, after tightening by 15 basis points in the previous two sessions. The country's second vice finance minister said on Thursday that growth this year could fall below the central bank's 2 percent forecast. Thailand's five-year CDS widened 20 basis points to 275 after the country's central bank surprised the market with a bigger-than-forecast 75 basis points rate cut, the second hefty reduction in two months.