Asian bond spread widen led by Thailand, Malaysia

HONG KONG, Sept 1  - Thailand's bond spreads widened on Monday as continued protests against the prime minister intensified concerns about political instability, while Malaysia's debt was hit by uncertainty over its fiscal standing.

Regional bond spreads also moved out as stock markets slumped on worries over corporate profits, and as inflation fears returned after Hurricane Gustav's approach to the U.S. Gulf coast pushed up oil prices.

Investors also worry a slew of expected new issuance this month could keep spreads from tightening.

Hong Kong's Wing Hang Bank was first out of the gate, setting guidance for its sale of perpetual bonds at a coupon of 9.5 to 10 percent, a source said on Monday, though no size has been determined.

"Thailand is the main focus today. It really depends on how the current political situation is going to be handled. Malaysia is also facing a deteriorating domestic financial situation," said a Hong Kong-based trader.

Thailand's five-year credit default swaps or insurance-like contracts that protect against defaults or restructuring, widened by 8-10 basis points to 140.

The country's sovereign bond spreads have pushed out by some 20 basis points since Aug. 26, when protesters began occupying Prime Minister Samak Sundaravej's official compound, vowing to remain until he and his elected government fall.

The concerns over political instability overshadowed data on Monday showing Thailand's annual inflation rate was much lower than expected at 6.4 percent in August.

Concerns over Malaysia also took centre stage after the government on Friday announced an expansionary federal budget that would push the budget deficit well beyond the government's earlier targets.

Malaysia's five-year CDS pushed out by some 5-8 basis points to about 125 since the news.

Investors have been deeply concerned about surging inflation in the region at a time of slowing regional economic growth, though there are signs that interest rate increases in the region may be nearing their peak.

Regional bond spreads widened on Monday as concerns over the outlook for earnings, especially in the technology sector, sent Asian stocks tumbling.

Oil prices may become another concern as Hurricane Gustav approaches the U.S. Gulf coast, threatening oil production in the region. U.S. crude prices rose 98 cents to $116.44 a barrel as of 0450 GMT on Monday.

The iTRAXX Asia ex-Japan high-yield index, a key measure of risk aversion, widened by 7-8 basis points to 560, while the equivalent investment-grade index moved out by 3 bps to 158.

A handful of issuers are expected to sell debt this month, as fundraising needs become more urgent as the end of the year approaches.

Wing Hang Bank is expected to price its offering of perpetual bonds, which are intended as upper Tier 2 capital, later this week, according to a source involved in the deal. (For a list of upcoming debt issuance from Asia see

FIVE-YEAR CREDIT DEFAULT SWAPS

Bid/Ask spread

Current Week ago Korea Dev Bank 174/~ 152/~ Hutchison 128/~ 120/130 PCCW-HKT 175/~ 170/200 China 64/69 61/67 Indonesia 255/~ ~/260 Korea 116/120 105/~ Malaysia 125/133 117/128 Philippines ~/245 230/240

~no bid or ask spread For CDS prices double click on

ASIAN BENCHMARK DOLLAR BONDS

Coupon Maturity Bid price Bid spread

5-YEAR

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DBS Bank 7.13 15-May-11 106.12 159

Malaysia 7.50 15-Jul-11 108.52 122

ICICI Bank 5.75 12-Jan-12 95.01 435

Petronas 7.00 22-May-12 108.45 141

Hutchison 6.50 13-Feb-13 102.57 274

Chartered Semi 6.25 4-Apr-13 95.86 422

Korea 4.25 1-Jun-13 97.89 165

United Overseas 4.50 2-Jul-13 96.30 228

PCCW-HKT 6.00 15-Jul-13 101.18 263

China 4.75 29-Oct-13 101.81 125

10-YEAR

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Hutchison 6.25 24-Jan-14 102.05 345

Korea 4.88 22-Sep-14 100.27 100

PCCW-HKT 5.25 20-Jul-15 89.35 342

Woori Bank 6.13 3-May-16 96.48 289

Penerbangan 5.63 15-Mar-16 102.93 133

Philippines 8.75 7-Oct-16 113.75 271

Indonesia 6.88 9-Mar-17 100.50 297

ICICI Bank 6.38 30-Apr-22 84.78 408

Petronas 7.88 22-May-22 120.10 191