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.