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Emerging debt-Asian bond spreads widen on US financial worries

Thu Aug 7, 2008 10:20am IST
 
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HONG KONG, Aug 7 (Reuters) - Asian bond spreads widened on Thursday as losses at world top insurer AIG and U.S. mortgage firm Freddie Mac reinforced concerns that a U.S. housing-related credit crisis continues to haunt the financial sector.

Though the recent slide in oil prices has cooled concerns over inflation, it has so far failed to make a significant impact on Asian credit spreads, as risk aversion continues amid worries about the global economy and the ongoing credit crisis.

The iTRAXX Asia ex-Japan investment-grade index ITAIG5Y=IE widened by 2 basis points (bps) to 139 bps while the high-yield index ITAHY5Y=IE widened by 6 bps to 548 bps.

"Trading volumes have been very quiet. People don't want to take risks at the moment, so spreads are drifting wider," said a Hong Kong-based trader.

The widening in spreads comes after American International Group Inc (AIG) (AIG.N: Quote, Profile, Research) posted its third consecutive quarterly net loss on Wednesday, hurt again by the write-down of derivatives linked to bad mortgage investments. [ID:nN06515686]

Meanwhile, Freddie Mac (FRE.N: Quote, Profile, Research), which was at the heart of a flare-up in the credit crisis last month that led to a rescue offer from the U.S. government, posted on Wednesday its fourth consecutive quarterly loss. [ID:nN06429838]

The now one-year credit crisis comes as Asian economies deal with the challenges of managing slowing economic growth at a time of rising inflationary pressures.

South Korea raised interest rates by a quarter percentage point on Thursday, in an expected move that puts the base rate KROCRT=ECI at a 7-1/2-year high of 5.25 percent and marks the first such move in a year. [ID:nSEO294060]

But faltering domestic demand and retreating oil prices has put into question whether the Bank of Korea will follow up with more rate hikes.  Continued...

Russian Finance Minister Alexey Kudrin poses with his G20 colleagues and central bank leaders during the family photo at the G20 Finance Ministers meeting at a hotel in St. Andrews, Scotland. REUTERS/POOL New
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