Emrging Debt-Asian credits weaken on GM concerns,supply fear

[HenryTo]

Friday April 15, 5:59 AM
Emerging Debt-Asian credits weaken on GM concerns,supply fears
HONG KONG, April 15 (Reuters) - Asian dollar bonds underperformed U.S. Treasuries on Friday as Indonesia's newly issued bonds extended their losses and after more bad news from U.S. corporates hurt sentiment.
Prices were also dragged lower on concerns that additional supplies could be coming from the Philippines. FinanceAsia magazine reported in its online edition the government had mandated banks to sell $500 million in sovereign bonds.

Indonesia on Wednesday sold $1 billion of 10-year global bonds priced to yield 7.375 percent, or 302 basis points (bps) above comparable U.S. Treasuries.

The spread on the bonds widened to 382 bps on Friday.

"Investors who bought have already lost 5 percent on the deal," said a Hong Kong-based dealer at a European bank.

"Sentiment was already poor and to make matters worse they came and dumped a billion worth of bonds...investors had no appetite to buy and this is causing a further sell-off."

The fall in Indonesian bonds sparked selling in other high yielding bonds. Commodity trader Noble Group Ltd's bonds fell to 428 basis points over U.S. Treasuries.

The bonds were issued at a spread of 225 bps last month and traders said investors had so far lost 13 percent on the deal.

Ports-to-telecoms conglomerate Hutchison Whampoa Ltd. bonds, due in 2033 widened by 10 bps to 203/197 bps. Its benchmark 2014 bonds were quoted at 129/126, about 5 bps wider.

Asian high-yield issues are also under pressure from worries that downgrades of U.S. companies could see a sharp increase in the supply of high-yield debt.

"The market backdrop for emerging markets and Asian credits appears to have deteriorated further with the continuing slide in U.S. equities, LBO (leveraged buy out) activity against Kerr-McGee and amid broad-based weakness in U.S. credits," Barclays Capital said in a report.

The three major ratings agencies on Thursday cut oil driller Kerr-McGee Corp. to junk status, creating worries about extra supply flowing into the high-yield market.

Bonds of General Motors , whose debt is at risk of being downgraded to junk status, swung lower on Thursday on what one Wall Street analyst called "unsubstantiated bankruptcy concerns." Company spokesman Jerry Dubrowski said GM has no plans to file for bankruptcy protection.

Philippine bonds and credit protection spreads were hurt by the talk of a new issue. Sovereign bonds maturing in 2025 fell to 106.25/106.75 in price terms, over a point weaker.

Credit default swaps -- insurance-like contracts that protect the holder against debt default or restructuring -- also widened, and the cost of insuring Philippine five-year sovereign debt was up 20 bps at 420/440 bps.