Thailand, S.Korea's spreads widen on turbulence

HONG KONG, Sept 2  - The cost of protection for Thailand's sovereign debt rose on Tuesday after the imposition of a state of emergency, while investors also nervously watched South Korea amid fears of capital flight out of the country.

The focus this week has shifted from broader trends such as oil prices and a weak global financial sector to individual sovereign credit risk factors.

The list of countries on investors' watch also includes Japan after the surprise resignation of Prime Minister Yasuo Fukuda and Malaysia, where widening fiscal deficit and the government's big spending plans worry markets.

"Political and social stresses percolating up through Thailand, Malaysia, Japan, and Korea this morning will dominate risk allocation strategies," said Brett Williams, a credit analyst at BNP Paribas in an email to clients.

"Thin market liquidity may further lead credit spreads to ignore tightening signals from the commodities and currency markets, from which we get weaker crude and a stronger dollar."

Thailand still remained the primary concern, after Prime Minister Samak Sundaravej declared on Tuesday a state of emergency in Bangkok and gave the army control of public order as clashes continue between pro- and anti-government protesters. [ID:nSP120651]

Standard & Poor's said the political turmoil could harm the country's ability to draw investments and an escalation of violence might trigger a cut in its ratings outlook to negative from stable. [ID:nHKG77032]

Thailand's five-year credit default swaps (CDS) widened by as much as 10 basis points to 150 before tightening to 146 on short covering, a Hong Kong-based trader said.

Spreads have widened some 20-25 basis points since protesters began occupying the Thai prime minister's compound on Aug. 26.

South Korea is also turning into another potential concern for investors, a day after local financial markets tumbled on fears of massive capital flight out of the country.

The government said on Tuesday it had both the will and the ability to deal with a plunging won currency and played down concerns of a crisis next week when nearly $7 billion of government bonds held by foreigners mature. [ID:nSEO66739]

South Korea's five-year CDS were last quoted at 125 basis points after widening some 10 bps this week.

Meanwhile, Malaysia's five-year CDS were range-bound at 128, though its expansionary budget and widening fiscal deficits are worrying investors. [ID:nHKG102597]

WING HANG BONDS

Despite the widening spreads seen in some sovereign debt, broader measures of risk aversion remained unchanged as U.S. markets were closed on Monday for a public holiday, providing little direction.

The iTRAXX Asia ex-Japan high-yield index remained range-bound at 560 basis points, while the equivalent investment-grade index was stuck at around 160.

The expected new raft of debt supply is yet another factor adding to the uncertainty.

Hong Kong's Wing Hang Bank <0302.HK> has attracted more than $300 million in orders for its sale of perpetual bonds, according to an e-mail update sent to investors on Tuesday and seen by Reuters. No update on the size of the deal was provided.

The lender is selling its bonds at a coupon of 9.5 to 10 percent, a source in the deal had told Reuters on Monday. (For a list of upcoming debt issuance from Asia see [EUB/ASIA]

FIVE-YEAR CREDIT DEFAULT SWAPS

Bid/Ask spread

Current Week ago Korea Dev Bank 183/~ 162/~ Hutchison 130/140 127/135 PCCW-HKT 175/~ 175/~ China 61/66 62/~ Indonesia 255/~ ~/260 Korea 125/125 108/117 Malaysia 128/140 122/127 Philippines 239/250 240/245

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

ASIAN BENCHMARK DOLLAR BONDS

Coupon Maturity Bid price Bid spread

5-YEAR

------

DBS Bank 7.13 15-May-11 106.19 156

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-13 102.57 273

Chartered Semi 6.25 4-Apr-13 95.86 422

Korea 4.25 1-Jun-13 98.45 151

United Overseas 4.50 2-Jul-13 96.41 225

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-14 101.97 345

Korea 4.88 22-Sep-14 100.27 100

PCCW-HKT 5.25 20-Jul-15 89.43 340

Woori Bank 6.13 3-May-16 96.57 288

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