Asian bond spreads widened on Friday on worries that a massive US stimulus plan may not be enough to pull the economy out of recession, while an expected global bond issue in Indonesia prompted some selling. The US Congress on Thursday wrapped up a last minute tax cut and spending details in the $789 billion stimulus bill, setting votes for Friday by both the House and the Senate.
The size of the package has been cut from the $819 billion that the House has earlier approved. Investors also decided not to take more risks ahead of the three-day holiday in the US, traders said. US financial markets will be closed on February 16 for a public holiday.
"Risk aversion is high due to the uncertainty on the US stimulus plan. After so much drama, it may not be enough to stimulate the economy," said Tim Condon, chief economist at ING Financial Markets in Singapore. The Asia iTraxx investment-grade index excluding Japan, a key measure of risk aversion, widened to 360/380 basis points from 345/355 on Thursday, a Hong Kong-based trader said. The index has widened by 20 to 30 basis points this week, marked by volatile movement in spreads and listless trades.
Elsewhere, Indonesia's five-year credit default swaps (CDS) - insurance-like contracts that protect investors against defaults or restructuring - widened to 590/610 basis points 580/600, as the country may issue global bonds in the next few days, traders said.
Jakarta held roadshows earlier this month in Europe, the United States and Asia to drumbeat interest on its planned global medium-term note. The response from investors was "good," according to Finance Minister Sri Mulyani. Indonesia is selling debt to help fund a planned bigger spending this year to spur Southeast Asia's biggest economy, which may grow between 4-5 percent this year according to central bank estimates.
Meanwhile, the Philippine five-year CDS also widened to 390/410 basis points from 380/400, as Moody's Investors Service warned that a decline in remittances from overseas Filipinos may hurt growth. Moody's expect the Philippines to rise 2 to 3 percent this year, below last year's 4.6 percent growth and the government's 3.7 percent forecast for 2009. Moody's on Thursday affirmed its positive outlook on Manila's credit ratings.