Asian bonds rises, ignore Argentine default

Hong Kong, Jan 4: The quest for yield in emerging markets spurred Asian dollar bonds higher on Friday, as investors ignored Argentina’s long-due debt default.

Argentina’s year-long debt woes climaxed on Thursday when a government source told Reuters the country missed payment of $28 million for an Italian lira bond.

But traders said Argentina had largely decoupled from other emerging markets risks and its bonds had become illiquid.

JP Morgan cut Argentina’s weighting in its benchmark Emerging Markets Bond Index plus to 2.63 per cent on December 31 from 5.2 per cent.

The weighting was successively scaled down through 2001 following the removal of bonds that did not meet the index’s liquidity criteria.
Spreads on Philippines bonds, the Asian proxy for emerging market risk, squeezed tighter following a 19 basis point (bps) tightening in emerging market bond spreads to 692 bps over US Treasuries, according to JP Morgan’s EMBI".

"The markets are very strong across the board," said a senior bond dealer with a European investment bank in Hong Kong.

Philippine 9.875 per cent bonds due 2010 narrowed 11 bps to 396 bps over comparable US Treasuries implying a price gain of 1.3 per cent this week. "People are buying anything with further yields...Korean sub-debt, Thai sub-debt -- and there’s still a very strong bid for high grades," the trader added. Popular Korean 8.875 per cent bonds due 2008 were quoted at 133 bps over five-year US Treasuries, against 138 bps in New York.

Meanwhile, traders expect the rally in Asia bonds to hold up next week as liquidity flows back to the market. "I think trading volumes will increase as dealers return from holiday," the bond dealer added. "The markets would seem to be ready for profit-taking but there are little signs of that now," he said.

— Reuters