SBI credit spreads widen after attacks

SBI credit spreads widen after attacks

Hong Kong: The risk premium for top Indian lender State Bank of India (SBI) rose, reflecting investor anxiety after the attacks by gunmen in commercial hub Mumbai.

India has not issued overseas bonds, and investors regard SBI as a proxy for the country’s sovereign credit. The state-run lender saw its five-year credit default swap (CDS) widen 15 basis points to 435 basis points after the attacks.

CDS are insurance-like contracts that protect investors against defaults or restructuring. Current prices mean investors would need to pay $435,000 for annual protection against a default in $10 million of SBI’s underlying debt.

The attacks in Mumbai come amid a resurgence of political risk in the region. In Thailand, Prime Minister Somchai Wongsawat on Wednesday rejected his army chief’s call to quit as anti-government protests intensify across the country.

But broader Asian spreads tightened outside these two countries, benefiting from stronger regional equity markets and China’s hefty interest rate cut on Wednesday, which boosted hopes that a top export destination for the region will avoid an excessive slowdown in growth.

“India is still seen as an isolated incident. We are seeing a knee-jerk reaction for sure, but I don’t think it poses a systemic risk to the rest of the region," said a Singapore-based fund manager for a major aset management firm.

“The uncertainty in Thailand is escalating, and it could be more of a concern. Still, it hasn’t affected the whole Asian market," he added.

Thailand’s 5-year CDS moved out by about 5-10 basis points to 300, and have now widened some 30 bps since the protests in the Southeast Asian country intensified on Tuesday.

That bucked the trend elsewhere in the region. The benchmark Asia ex-Japan iTRAXX investment-grade index, a key measure of risk aversion, tightened for a fourth consecutive session, moving in by 10 bps to 355 bps.