Asian bond spreads widened on Monday, as uncertainty hounded the approval of President Barack Obama's nearly $900 billion economic stimulus package, while a dimming outlook on corporate earnings added to the gloom. The Asia iTRAXX investment-grade index excluding Japan, a key measure of risk aversion, widened 10 basis points to 350, a Hong Kong-based trader said.
"The overall sentiment remains weak. Credit spreads have tightened largely because of the (US) stimulus package. But now it is fading out," the trader said. "Risk aversion is rising." Last month, the index tightened 12 basis points amid investor expectations that spreads would not widen to the peaks seen in late October as President Obama strives to spur the battered US economy and boost the distressed financial industry.
Obama is set to meet later on Monday with Congressional leaders after senior Republican senators warned that their party would not back the stimulus bill without an assurance that it would have an immediate impact on the economy. Elsewhere, China's five-year credit default swap (CDS) - insurance-like contracts that protect investors against defaults or restructuring - widened by 15 basis points to 225 after Beijing reported that the government swung into a deficit in 2008.
China, which pledged to raise spending to shield the economy from the downturn, spent 1.66 trillion yuan ($243 billion) in December, up 31 percent from a year ago. That resulted in an implied public deficit of about 111 billion yuan.
Meanwhile, South Korea's five-year CDS also widened by 40 basis points to 385. Seoul said on Monday that the country's exports shrank by a record 32.8 percent in January over a year earlier. The spread on South Korea's CDS may widen to 400 basis points later on Monday on worries about the economy, the analyst said.