Emerging debt-Asian spreads tighten on Fannie, Freddie bailout

(Updates with details, background)

By Rafael Nam

HONG KONG, Sept 8 (Reuters) - Asian bond spreads tightened
on Monday after the U.S. government takeover of Fannie Mae and
Freddie Mac was seen removing a key uncertainty in global
credit markets, but investors warned the rally may not be
sustained.

A broad measure of risk aversion in the region, the iTRAXX
Asia ex-Japan high-yield index ITAHY5Y=IE, tightened 35 basis
points (bps) to about 535-540, a Hong Kong-based trader said.

The equivalent investment-grade index ITAIG5Y=IE
tightened by 15-20 basis points to about 158, the same trader
said.

The rally, which was led by financial firms and sovereign
credits, comes after spreads in Asia had expanded on Friday to
their widest in two months due to a host of bearish factors,
including a slowing global economy and political instability in
countries such as Pakistan.

"What you have is the U.S. government not putting in
immediate cash, but putting its credibility on the line. It's a
tremendous help, but it doesn't solve all the problems," said
Scott Bennett, a fund manager at Aberdeen Asset Management in
Singapore.

"It's good news because it reduces systematic risk in the
U.S. financial system. However, this news will likely be
displaced going forward by other credit negative news. I still
remain cautious."

Other analysts also warned against expecting a sustained
tightening in Asian credit spreads, as investors fear for
continued weakness in the world's financial industry, and the
potential of slower economic growth at a time of high
inflation.

Asian bond spreads have more than doubled this year, though
they are still well below the record highs seen in mid-March in
the lead-up to the Bear Stearns rescue.

Data on Friday showed the U.S. unemployment rate shot up to
6.1 percent in August and that more jobs were lost than
expected, reinforcing the need for more caution.
[ID:nN05415312]

Analysts also noted that the problems at Fannie Mae and
Freddie Mach may continue, even after the U.S. government
seized control of the mortgage finance companies on Sunday.
[ID:nN07479172]

"The government effectively provides an explicit guarantee
and in this respect the news will at least dampen fears of a
meltdown. However, it means more debt (is) on the government's
hands and the taxpayer," said Calyon analysts in a note to
clients on Monday.

"It also won't help to turn the housing market around but
just prevent the falling apart of the two key institutions that
support the mortgage market. We also do not know what will
eventually happen to Fannie and Freddie."

BANKS RALLY

The cost of protection against a default in the debt of
regional banks dropped, especially in South Korea, which has
seen the spreads in its lenders widen considerably amid
concerns about a slowing domestic economy and debt levels in
the private sector.

Woori Bank's five-year senior credit default swap (CSDS)
WOOR5YUSAC=MP, or insurance-like contracts that protect
investors against defaults or restructuring, tightened by about
30 basis points to 260.

Woori is one of several South Korean lenders that are
believed to be eyeing opportunities to sell new debt this year.

South Korea's sovereign five-year CDS KOREA5UA=GFI moved
in by 15 basis points to 120, after surging last week on fears
about capital flight out of the country.

Other sovereign CDS tightened considerably, with Malaysia
quoted at 127, down about 10-12 from Friday's levels.

But pockets of political instability are also worrying
investors. Thailand's five-year CDS has initially tightened by
as much as 10 basis points to 130, before pushing out again to
136, as concerns about the ongoing protests against the
government have spooked foreign investors.

Thailand's Constitutional Court will rule on Tuesday
whether the country's prime minister violated the constitution
by hosting television cook shows while in office. If found
guilty, Samak Sundaravej may have to step down. [ID:nSP341812]
tightened by a few basis points each by later in the morning.

(For a list of upcoming debt issuance from Asia see
[EUB/ASIA]

FIVE-YEAR CREDIT DEFAULT SWAPS

Bid/Ask spread

Current Week ago
Korea Dev Bank 198/~ 174/~
Hutchison 136/~ 128/~
PCCW-HKT 190/~ 175/~
China ~/64 64/69
Indonesia 255/~ 255/~
Korea 120/~ 116/120
Malaysia 127/~ 125/133
Philippines 230/~ ~/245

~no bid or ask spread
For CDS prices double click on GFICDS

ASIAN BENCHMARK DOLLAR BONDS

Coupon Maturity Bid price Bid
spread

5-YEAR

------

DBS Bank 7.13 15-May-11 103.78 238

Malaysia 7.50 15-Jul-11 108.35 116

ICICI Bank 5.75 12-Jan-12 95.34 413

Petronas 7.00 22-May-12 108.80 120

Hutchison 6.50 13-Feb-13 102.99 252

Chartered Semi 6.25 4-Apr-13 95.21 430

Korea 4.25 1-Jun-13 98.35 144

United Overseas 4.50 2-Jul-13 97.29 194

PCCW-HKT 6.00 15-Jul-13 101.18 253

China 4.75 29-Oct-13 102.27 105

10-YEAR

-------

Hutchison 6.25 24-Jan-14 103.86 327

Korea 4.88 22-Sep-14 100.89 86

PCCW-HKT 5.25 20-Jul-15 90.47 317

Woori Bank 6.13 3-May-16 96.47 287

Penerbangan 5.63 15-Mar-16 102.93 130

Philippines 8.75 7-Oct-16 114.00 265

Indonesia 6.88 9-Mar-17 101.50 279

ICICI Bank 6.38 30-Apr-22 85.65 394

Petronas 7.88 22-May-22 119.97 190
(Reporting by Rafael Nam; Editing by Jan Dahinten)