Asian bond spreads narrowed on Friday on hopes that the United States would dole out more funds to aid its ailing banks, but premiums for South Korea's debt widened after Moody's warned it would cut ratings on 10 lenders. Korea Development Bank (KDB) issued guidance on the pricing of a benchmark five-year bond sale at 675-700 basis points over US Treasuries on Friday.
The lender, which was included in Moody's list, aims to raise at least $1 billion. KDB's 5.3 percent bonds maturing in 2013 were bid at 630 basis points over Treasuries. Elsewhere, Asian bond spreads halted three straight days of widening, encouraged by the US lawmakers efforts to expand an economic stimulus package and hasten the release of bailout funds for distressed banks.
"It's a good day for risky assets today," said Tim Condon, chief economist at ING Financial Markets in Singapore. "US stocks eked out gains and that set the tone for Asia today." The Asia iTraxx investment-grade index excluding Japan, a key measure of risk aversion, tightened 5 basis points to 320, a Hong Kong-based trader said.
The index, which measures 50 high-credit bond spreads in Asia, has widened by as much 53 basis points in the previous three sessions. But overall sentiment remained cautious as investors expect more grim data from the US next week, Condon said.
The US economy is facing the risks of a prolonged recession and deflation as mounting job losses hit consumer spending, latest data showed. South Korea's credit default swaps (CDS) - or insurance-like contracts that protect investors against defaults or retructuring - widened 5 basis points to 340. The Bank of Korea would continue to provide lenders with cash to ease the credit crunch, and reiterated a pledge to steer its interest rate policy to spur the economy.
Moody's Investors Service warned on Thursday it may downgrade South Korean banks whose foreign currency debt ratings are above the country's sovereign rating, saying the higher ratings were inappropriate as they rely on the government to secure external funding.