Political concerns haunt RI's bonds

Political concerns haunt RI's bonds

HONG KONG (Dow Jones): Asian benchmark bonds held firm Friday and remained well bid despite lower U.S. Treasury yields from Thursday's rally.

Indonesia's bond spread suffered the most due to renewed political concerns. However, some traders noted activity on Indonesian bonds remained thin Friday.

The latest tension between Indonesian President Abdurrahman Wahid and parliament over Wahid's dismissal of two ministers has cast a shadow over a special parliament session in August, where Wahid is to deliver an accountability speech.

As a result, the spread on Indonesia's 2006 benchmark bond widened by 15 basis points to 688 basis points over U.S. Treasurys.

The widening was further aggravated by a rally on U.S. Treasurys overnight, prompted by market friendly remarks from U.S. Federal Reserve Chairman Alan Greenspan.

"Most of the (Indonesian spread) widening was due to the rally in Treasurys," said on trader.

Greenspan's speech to the Senate Banking Committee Thursday suggested that U.S. economic growth is showing signs of a slowdown, thanks to the Fed's rate hikes in the past 12 months. Greenspan was less hawkish than expected, which calmed earlier market concern over a rate hike in August.

Despite lower U.S. yields, Korean bond spreads managed to tighten earlier Friday, benefiting from positive news in the banking sector.

Credit rating agency Standard & Poor's Corp. Thursday upgraded Industrial Bank of Korea to BBB- from BB+, reflecting the bank's asset quality, with a nonperforming loan ratio at 6 percent, down from its previous ratio of 8.9 percent.

Thai banks also showed signs of improvement in the second quarter of the year, posting profits again. The better financial climate boosted investor confidence to tighten the spread on Thailand's 2007 benchmark, if only by three basis points, to 1.75 percent over Treasurys.