Asian bond spreads widened on Wednesday on worries that more bank failures could freeze global credit markets again, making it harder for the region's export-dependent economies to recover from recession.
The market was shaken earlier on Wednesday when Singapore said it is deep in its worst recession ever after announcing that the economy shrank more than forecast in the fourth quarter, painting gloomy outlooks for China and South Korea, which are expected to release growth data later this week.
Singapore's economy shrank 16.9 percent in the fourth quarter, more than the advance estimates of a 12.5 percent contraction, the government said. The economy may contract as much as 5 percent in 2009, down from a previous range of minus 2 percent to plus 1 percent, it said.
The Asia iTraxx investment-grade index excluding Japan, a key measure of risk aversion, widened to 330/345 basis points from 327, a trader from a Hong Kong bank said. That marked the second straight day that spreads have widened, as fears of massive bank losses weighed on the market.
Recent issues from the Philippines, Korean Development Bank and Export-Import Bank of Korea, which together raised about $5.5 billion from selling bonds, may also exert pressure on spreads to widen further in the coming months.
Risk aversion also hit Asian shares, which fell to their lowest in more than six weeks, as dismayed investors sold stocks after US President Barack Obama did not include further details of his plan to spur the economy and rescue the financial industry in his inaugural speech on Tuesday.
Elsewhere, China's five-year credit default swaps (CDS) - or insurance-like contracts that protect investors against defaults or restructuring - widened to 207/217 basis points from 190/200 on Tuesday, a trader said. The Chinese economy probably grew 7 percent last quarter from a year ago, its slowest pace in nearly a decade, according to economists polled by Reuters.
Beijing has cut rates, lowered taxes and said it would spend 4 trillion yuan ($586 billion) to shield its economy from the global downturn. South Korea's five-year CDS widened to 320/355 basis points from 310/340. Korea's economy probably shrank a seasonally adjusted 2.7 percent in the fourth quarter from the third, its worst in nearly 11 years, economists said in a Reuters poll.