Philippine, Indonesian bonds weaken

Philippine, Indonesian bonds weaken

HONG KONG (Dow Jones): Philippine and Indonesian benchmark bonds dipped this week because of continued social, political and economic concerns, while other Asian benchmark bonds held firm in overall thin summer trading.

The spread on Indonesia's 2006 benchmark against equivalent U.S. Treasurys widened by 60 basis points Friday from a week ago while the spread of the Philippines' 2008 bond widened by 45 basis points.

In the case of the Philippines, sentiment was weakened earlier this week when the government suggested that it would exceed its budget deficit forecast this year, said one trader in Manila.

The prospect of fresh supply weighed on the Philippines' existing bonds, the trader said.

According to press reports, the Philippines plans to raise US$500 million through the sale of bonds to Philippine investors holding dollars locally in the form of foreign currency depository units.

"All the bad news is coming on top of the old problems," the trader said.

In addition to the new funding requirement, the government has to rebuild investor confidence that has been battered by the protracted Muslim insurgency in Mindanao, several bomb blasts and the hostage crisis in Jolo Island.

In Indonesia, investor confidence suffered from Coordinating Minister for Economy and Finance Kwik Kian Gie's statement that the government is considering scrapping debt-settlement agreements signed with a number of Indonesia's top business groups.

Recent threats from the U.S. government to take legal action against the Indonesian government to recover $290 million provided an additional reason for investors to pull their money out of Indonesian bonds.