RI benchmark bond spread widens

RI benchmark bond spread widens

HONG KONG (Dow Jones): Asian benchmark bonds - apart from Indonesia's - tightened against U.S. Treasurys this week on a technical rebound thanks to the combined effect of rising U.S. bond yields and tighter swap spreads.

Spreads on the 2006 Indonesian benchmark widened by 34 basis points on Friday from a week ago to trade at a spread of around 669 basis points above Treasurys.

In Indonesia, political and social uncertainty is causing fund outflows from the country and pushing the currency to its 16- month low, at 9,300 rupiah against the dollar, despite improved economic fundamentals.

Market anticipation of an imminent credit rating upgrade on Malaysia also boosted Asian bonds.

"The market rumor of a Malaysian upgrade helped tighten Malaysian spreads and had a pull effect on Korea," said one trader in Hong Kong.

Korea led the gainers with a 12-basis-point tightening Friday from a week ago on the 2008 Korean benchmark. It was trading around 206 basis points above Treasurys earlier Friday.

The yield on Malaysia's 8.75 percent benchmark maturing in 2009 narrowed by six basis points against Treasurys from last week.

Swap spreads are tightening because "the Treasury yield curve is less invested" noted the trader. As market participants start to anticipate that the U.S. Federal Reserve's "tightening cycle is coming to an end, they start buying back off the run bonds and leave longer maturities alone," the trader continued.

Observers said market participants will be focusing on U.S. job data due out early in the New York session Friday. A Dow Jones/CNBC median forecast of 14 economists expects non-farm payrolls to have risen 245,000 in June, following May's gain of 231,000, which was driven by census-related hiring. The median forecast expects the unemployment rate to have fallen to 4.0 percent from 4.1 percent in May.