Emerging debt markets weaken
Asian bonds drifted on Thursday but the tone was downbeat, weighed by weak regional stock markets ahead of US non-farm payroll data that some expect might show a slowdown in the world's largest economy.
HONG KONG: Asian bonds drifted on Thursday but the tone was downbeat, weighed by weak regional stock markets ahead of US non-farm payroll data that some expect might show a slowdown in the world's largest economy.
Sentiment has been lacklustre since emerging debt markets in other parts of the world weakened, driving yield spreads between emerging bonds and US treasury notes, a key gauge of risk aversion, wider by 10 basis points (bps) to 233 bps. However, spreads tightened by 2 bps on Thursday to 231 bps.
"There is little liquidity, and bid-offer spreads have widened even further," said a Hong Kong based trader.
He said that in the high-yield sector, where spreads normally range between 25 to 50 cents to a dollar, spreads had widened to between 75 cents and a dollar.
Philippine bonds due in 2032 were quoted at 96/96.50 cents to a dollar, and 2031 bonds were quoted at 107/107.50.
The cost of insuring Philippine debt fell. The 5-year credit default swaps (CDS) -- insurance-like contracts that
protect against defaults and restructuring -- widened to 177/183 bps from Wednesday's 174 bps.
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But trade was thin and investors were not biting.
"There could be some bottom fishing if prices drop by, say, 2 points on the long end cash or if we see CDS go north of
200," said a Manila-based trader, indicating the levels sellers had to drop their offers too if they were to attract buyers.
Bonds from Titan Petrochemicals Group Ltd continued their slide after its credit rating was downgraded by Standard &
Poor's Ratings Services and Moody's Investors Service due to its investment in a shipyard.
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The 2012 bonds fell to 87/88.50 cents to a dollar from 88/90 before the downgrade.
Investment bank HSBC cut its recommendation on the bond to underweight from neutral, blaming both the shipyard acquisition and weak first-half results.
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"We see limited prospects for improved fundamentals in the short term, reflecting heavy capital expenditure commitments
and execution risk in the storage and shipbuilding segments," the bank said in a report.
It said the bonds yielded 12.33 percent and were overvalued compared with peers GITI Tires 2012 bonds which were yielding 13.48 percent.
And although the primary market has become inactive in the past month, analysts say this is not hurting corporates.
"Traditionally, regional companies have relied more heavily on the banking system for funding than their counterparts in other parts of the world," Moody's said in a report.
"Crucially, Asia's banks are generally showing no reluctance to lend to corporates in the current environment," the report said.
The capital market shutdown is not affecting banks because Asia's banks are amply deposit-funded rather than capital market funded, the report said.
In September so far just one offshore bond issue has been executed in Asia outside of Japan -- a reopening of the 2011
bond series by Indonesia's PT Davomas Abadi Tbk to raise $88 million.
In August, just one issue -- a $100 million sale by Indonesian mobile phone operator PT Mobile-8 Telecom Tbk -- was
done.
This compares with $29.4 billion raised in the first half of the year.
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