BLBG: Asia Bond Risk Drops to May 2008 Low on U.S. Economic Optimism
By Shelley Smith and Katrina Nicholas
Jan. 5 (Bloomberg) -- The cost of protecting Asia-Pacific corporate and sovereign bonds from default fell to the lowest level since May 2008 on optimism a recovery in the world’s largest economy is gathering pace.
“Compared with the uncertainties we had last year, there’s more clarity,” Jason Rogers, a credit analyst at Barclays Plc, said in a phone interview from Singapore. “On balance, the outlook is more positive than negative.”
U.S. stocks advanced the most in two months yesterday after a gauge of manufacturing rose more than estimated and freezing weather boosted the price of oil. The S&P 500 rose 1.6 percent to 1,132.99 in New York, its highest close since Oct. 1, 2008.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 4.5 basis points to 91.5 basis points, the lowest since May 20, 2008, as of 11:22 a.m. in Singapore, Barclays and CMA DataVision prices show. The Markit iTraxx Australia index fell 5.5 basis points to 81.5 basis points, the lowest since May 5, 2008, as of 2:13 p.m. in Sydney, Westpac Banking Corp. and CMA prices show.
U.S. equities extended a global advance, spurred by an increase in a barometer of Chinese manufacturing that expanded by the most in five years in December. In Asia, governments have pledged more than $950 billion in spending to stimulate their economies.
“I don’t think there are any one-off factors driving the credit markets but there may be some spillover from equity markets starting on a positive note,” Rogers said.
Equities Gain
The MSCI Asia Pacific Index rose 1.3 percent to 123.57 as of 12:33 p.m. in Tokyo, set to close at its highest level since Aug. 29, 2008. The index climbed 34 percent last year as Asia recovered faster from the worst global slowdown since World War II.
The Markit iTraxx Japan index declined 4 basis points to 130 basis points, according to Morgan Stanley prices as of 8:21 a.m. in Tokyo.
Credit-default swap indexes are benchmarks for protecting bonds against default, and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement.
The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.
To contact the reporters on this story: Shelley Smith in Hong Kong at ssmith118@bloomberg.net; Katrina Nicholas in Singapore at knicholas2@bloomberg.net.
