Emerging Asian bond spreads wider

Emerging Asian bond spreads wider

HONG KONG (Reuters): Asian benchmark bond spreads were broadly wider on Monday as investors opted for safe-haven U.S. Treasuries over emerging market volatility fueled by gyrations on global equity markets.

"The key question is whether investors believe that a bottom was established last week," Raja Visweswaran, head of Asia securities research at Bank of America, said.

"Our view on this issue is that the concept of a market bottom is fairly iffy at a time like this, when investor focus is firmly on quality... second-tiers and the more speculative (bonds) are still not in favor," he said in a note to clients.

A-grade bonds have been the best performing fixed income assets in Asia in recent weeks. At 201 basis points (bps) over U.S. Treasuries on average, they are just inside the 52-week wide spread of 205 bps and are well outside the narrowest 52-week spread of 150 bps.

Spreads on major Asian sovereign and corporate issues were five to 10 bps wider over Treasuries on Monday, sources said.

The unexpected outlook downgrade of the Philippines by Standard & Poor's to negative from stable last week was labeled as harsh by the country's central bank chief on Friday.

"It was rather harsh given the Philippines has a democratic process for change. To say there is uncertainty is exaggerated, because obviously political solutions will be found and none of these will be violent means," central bank governor Rafael Buenaventura said.

The ratings agency cited political uncertainty as the motivation for its move and Buenaventura's protestation provided no support for the country's sagging sovereign bonds.

The 9.875-percent Philippine 10-year benchmark bonds were quoted around 718 bps over Treasuries from 678 bps on Friday.

Corporate issuers were also dealt a blow with S&P revising it's outlook downward on a raft of issues.

Beleaguered Internet and telecom group Pacific Century CyberWorks (PCCW) suspended trade on Monday pending an announcement about a proposed share offer and a convertible bond issue in a wholly-owned subsidiary of the company.

It said several derivative warrants would also be suspended.

"The board of Pacific Century CyberWorks is meeting this morning to consider certain proposals to strengthen and broaden the capital base of the company," PCCW spokeswoman Joan Wagner told Reuters.

Speculation in Hong Kong was rampant on Monday morning as to what PCCW was concocting. The company's stock has plunged some 40 percent over the last month as negative sentiment towards Internet and telecom sectors has intensified.

Shareholders of Indonesian cement giant PT Indocement Tunggal Prakarsa on Friday approved a landmark $1.1 billion debt deal reached earlier this year with creditors.

The deal restructures the Indocement debts over eight years, including two years' grace, company officials and participants at a meeting of shareholders in Jakarta said.

Shareholders, which include the government with 45.5 percent of Indocement, also agreed to pave the way for German cement firm Heidelberger Zement AG to take a stake in the company, but no actual mechanism for this has been approved yet.