Asian bond spreads narrowed on Tuesday to their lowest level in nine months, as latest US manufacturing and spending data supported views that the worst global economic downturn in decades may be over. Wall Street shares rallied overnight spurred by data showing that the US manufacturing sector contracted at a slower pace for the fifth straight month in May.
While consumer spending slipped slightly in April. "It's part of a general trend of the recovery of risky asset prices across the board," said Tim Condon, chief economist at ING financial markets in Singapore. "We had a good data overnight and that continues to support the recovery in risk appetite."
Unlike safe-haven US or Japanese government debt, most Asian bonds are seen as riskier assets that benefit from improved risk appetite. The Asia iTraxx investment-grade index excluding Japan narrowed to 165/175 basis points (bps) from 175/185, a Hong Kong-based trader said.
The index, which measures 50 high-credit bond spreads in Asia, is at its tightest level since early September, according to Reuters data. "The tightening trend will continue. We are seeing funds flowing into the credit and commodities markets not just in Asia. Safe haven assets are suffering," an analyst said. The MSCI index of Asia-Pacific stocks outside Japan was up 1 percent as of 0322 GMT.
The following were the major movers in cash bonds and credit default swaps (CDS): Philippines' cash bonds gained, with the country's 8.375 percent bond due in 2019 rising to 117.50/117.75, the highest since the debt was sold in January, a Manila-based trader said. The bond was trading at 116.50/116.875 on Monday. The nation's five-year CDS narrowed to 180/195 bps from 210/220, the trader said.
South Korea's five-year CDS narrowed to 135/140 bps from 150/160, tracking the performance of the broader market, but expectations of new issues capped gains, traders said. Shinhan Bank will meet investors this week with an eye for a potential global debt sale, two sources said. China's five-year CDS narrowed by 10 bps to 70/80, after the country's manufacturing sector expanded moderately in May as new export orders improved.