Asian bond spreads tighten despite U.S. rate concern<\/p>\n
HONG KONG (Dow Jones): Recent rallies in regional stock
\nmarkets helped Asian bonds temporarily overcome U.S. interest
\nrate concerns to see a further tightening of spreads.<\/p>\n
Korea's 2008 bond, the most liquid benchmark in the region,
\nhas narrowed close to all-time lows. It's quoted at 215 basis
\npoints over Treasurys, compared to 233 basis points a week ago.<\/p>\n
Korean quasi-sovereigns are taking their cue from the
\nbenchmark, with KDB 2006 tightening to 220 basis points from 230
\nbasis points last week.<\/p>\n
Traders said investors, however, remain worried about the
\ndirection of U.S. rates, and that Asian bonds are likely to see
\nsome degree of sell-off once there's a clear picture on U.S.
\ninterest rates and Treasury yields move in a decided direction.
\nOvernight, the 30-year Treasury yield broke through the key 6%
\nlevel.<\/p>\n
Despite that development, traders said U.S. and Asian
\ninvestors are still looking to buy Asian paper. And, given the
\nmarket's lack of liquidity, spreads will continue to tighten.<\/p>\n
\"You don't see spreads widening even though (U.S.) rates are
\ngoing higher,\" said a Hong Kong-based chief trader with a
\nEuropean bank. \"Granted, the (U.S.) interest rate cycle seems to
\nbe turning around, but Asian spreads will hold tight as long as
\nthere's not much liquidity.\"<\/p>\n
Buying is now limited to sovereigns - the only issues still
\nliquid well into a lengthy month-long rally. Second-tier
\ncorporate paper, which had attracted high-yield investors some
\nmonths back, is now difficult to trade, since past buyers are
\nunwilling to sell.<\/p>\n
Meanwhile, Indonesian paper - both sovereign and corporate -
\ncontinued to outperform the rest of the Asian market. The smooth
\nJune 7 elections and the relatively trouble-free vote-counting
\nprocess has reassured investors.<\/p>\n
The spread on Indonesia 2006 came in about 80 basis points on
\nTuesday due in part to U.S. demand. Wednesday morning it was
\nquoted at 666 basis points, compared to 744 basis points a week
\nago. However, trades are volatile with single transactions,
\nmoving spreads by as much as 50 basis points, traders said.<\/p>\n
Some market sources said gains on Indonesian paper are likely
\nlimited, with some widening possible in the near future as the
\nelection-related euphoria wears off and investors focus again on
\nthe country's deeply rooted economic problems.<\/p>\n
On a broader regional level, the Asian bond market will take
\nits cue from U.S. markets, closely watching Friday's U.S.
\nproducer price inflation data and next Wednesday's consumer price
\nindex.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/asian-bond-spreads-tighten-despite-us-rate-concern-1447893297",
"image": ""
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