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Saturday 11 October 2008
Credit default insurance costs for Asia hit record
The cost of protection against defaults in Asian debt soared to record highs yesterday amid fears the financial crisis could soon spread to the region, especially to countries such as Indonesia and South Korea. PDF
Credit default insurance costs for Asia hit record
Reuters 11 October 2008
The cost of protection against defaults in Asian debt soared to record highs yesterday amid fears the financial crisis could soon spread to the region, especially to countries such as Indonesia and South Korea.
The widening spreads in regional credit default swaps comes despite government efforts to inject liquidity, as these measures are overtaken by fears of a global recession.
The worsening tone in Asian credit markets also reflected concerns about political instability and policy responses in the region, sparking some reminders of the financial crisis that swept the region a decade ago, analysts said.
“There’s a general consensus that Asia is in better shape. But that doesn’t mean it won’t be affected. Clearly, once American consumers start to scale back and then in Europe, that’s going to affect Asia,” said Adil Chaudhry, the head of regional credit markets for Scotiabank. “Even though the banks ... haven’t made as many structured and other types of investments as their peers in Europe and North America, they still will obviously be affected by this.”
The iTraxx Asia ex-Japan high-yield index, a measure of risk aversion for the region’s junk-rated credit, soared about 90 basis points to a record 890 to 940 basis points.
The equivalent investment-grade index widened by 40 to 50 basis points to 318 to 338 points.
Asian certificate of deposit spreads have now widened well beyond benchmark levels in the United States and Europe, where the Markit iTraxx Crossover index, a measure of European high-yield credit spreads, was trading at about 665 basis points.
Analysts mainly attributed the discrepancy to lower liquidity in Asia, which tends to magnify volatility. Current volumes remained especially low, traders said.
Investors are concerned the credit crisis is leaving the current account positions in some countries vulnerable and sparking instability in their financial sectors.
Korea’s five-year CDs widened by 30 to 40 basis points to about 345, continuing to trade at record levels.
That means an investor would need to pay US$345,000 annually to insure against a default in US$10 million of the country’s underlying debt. At the end of last year, the cost was only US$40,000.
Indonesia appears to be suffering from a particularly acute lack of trust from foreign investors. Southeast Asia’s top economy is facing high inflation and reduced exports of commodities such as palm oil.
“People just want to get their money out of Indonesia,” said a fund manager. “We haven’t forgotten what happened 10 years ago.”
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Credit default insurance costs for Asia hit record
Reuters
11 October 2008
The cost of protection against defaults in Asian debt soared to record highs yesterday amid fears the financial crisis could soon spread to the region, especially to countries such as Indonesia and South Korea.
The widening spreads in regional credit default swaps comes despite government efforts to inject liquidity, as these measures are overtaken by fears of a global recession.
The worsening tone in Asian credit markets also reflected concerns about political instability and policy responses in the region, sparking some reminders of the financial crisis that swept the region a decade ago, analysts said.
“There’s a general consensus that Asia is in better shape. But that doesn’t mean it won’t be affected. Clearly, once American consumers start to scale back and then in Europe, that’s going to affect Asia,” said Adil Chaudhry, the head of regional credit markets for Scotiabank. “Even though the banks ... haven’t made as many structured and other types of investments as their peers in Europe and North America, they still will obviously be affected by this.”
The iTraxx Asia ex-Japan high-yield index, a measure of risk aversion for the region’s junk-rated credit, soared about 90 basis points to a record 890 to 940 basis points.
The equivalent investment-grade index widened by 40 to 50 basis points to 318 to 338 points.
Asian certificate of deposit spreads have now widened well beyond benchmark levels in the United States and Europe, where the Markit iTraxx Crossover index, a measure of European high-yield credit spreads, was trading at about 665 basis points.
Analysts mainly attributed the discrepancy to lower liquidity in Asia, which tends to magnify volatility. Current volumes remained especially low, traders said.
Investors are concerned the credit crisis is leaving the current account positions in some countries vulnerable and sparking instability in their financial sectors.
Korea’s five-year CDs widened by 30 to 40 basis points to about 345, continuing to trade at record levels.
That means an investor would need to pay US$345,000 annually to insure against a default in US$10 million of the country’s underlying debt. At the end of last year, the cost was only US$40,000.
Indonesia appears to be suffering from a particularly acute lack of trust from foreign investors. Southeast Asia’s top economy is facing high inflation and reduced exports of commodities such as palm oil.
“People just want to get their money out of Indonesia,” said a fund manager. “We haven’t forgotten what happened 10 years ago.”
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