Hong Kong: Asian credit spreads tightened on Thursday for the second straight day after the Federal Reserve indicated its intention to keep interest rates low, but the pending decision on US auto industry bailout plan capped gains.
The Asia iTRAXX investment-grade index excluding Japan, a key measure of risk aversion, moved in to 358/378 basis points (bps) from 370/385 bps.
“The next thing to look forward is whether the US will bail out the auto makers and if the Philippines will push through their borrowing plan early next year,” said a Manila-based trader.
US President George W. Bush said on Wednesday a decision on bailing out the teetering US auto industry needs to be made “relatively soon” while the halt announced by Chrysler LLC in its factory operations renewed the pressure on his administration to quickly help cash strapped automakers.
Meanwhile, Asian borrowers have started setting out their plans for debt issuance in 2009.
The Philippines, one of Asia’s largest sovereign debt issuers hopes to cover much of its US $1.5 billion total in 2009.
Manila’s bonds due in 2032 were trading at 95/97cents on the US dollar and the 2031 bonds were quoted at 100/104. These bonds were trading between 0.5 to 1 point higher.
Its 5-year credit default swaps (CDS) insurance, like contracts that protect against defaults and restructuring, were steady at 390/420 bps.
But some analysts expect primary markets focus to switch to local currencies in the first quarter.
“January will see a rush of local currency new issuance, mainly in Hong Kong dollars and dollar-debt sales will pick up slowly but mostly in private placed deals,” said a Hong Kong based trader.
While, sales in bonds denominated in euro, dollars and yen halved in 2008 from a year ago, local currency bond issuance rose as borrowers looked homewards for funding.
The offshore bond market’s dramatic decline has been mainly due to hedge funds fleeing the region and banks proprietary desks curtailing their operations in the wake of the credit crunch.
Investors say debt sales from sovereign borrowers would dominate the early part of 2009 with issuers like Indonesia, Philippines and South Korea likely to sell bonds.
Indonesia, another sovereign which has become active in debt markets in recent years, has hired Barclays Capital and UBS to set up a global medium term note programme, a source familiar with the deal said on Wednesday.
In December, Jakarta picked seven banks including Barclays and UBS as advisers for a funding programme of up to US $4 billion next year.