Asian credit gauges head for biggest two-day blowout since April

[JAKARTA] Credit spreads on Asian investment-grade US dollar bonds widened on Monday (Aug 4), putting them on course for the biggest two-day blowout since early April, following worse-than-expected US jobs data.

Yield premiums on Asian notes were at least three basis points wider on the day after expanding six basis points on Friday, based on information from traders and a Bloomberg index. The expansion came after spreads shrank to a record low before Friday’s payrolls numbers.

The gyrations in Asian credit markets are part of a slump in global risk sentiment following the disappointing jobs data. Treasuries jumped in US trading as markets added to bets on Federal Reserve interest-rate cuts this year.

Any large move in US Treasury yields, over which most corporate US dollar bonds are priced, typically causes spreads to react around the world as traders reprice risk.

Spreads on higher-rated corporate bonds had shrunk to the narrowest since July 2007 before Friday’s nonfarm payrolls numbers as markets cheered a string of trade deals between the US and major trading partners, including the European Union and Japan. In the event, that tightening may have just made them more vulnerable to any negative news.

“US spreads remain pretty tight,” said Pauline Chrystal, a fund manager at Kapstream Capital in Sydney. “We continue to see the risk-reward skewed to the downside.” BLOOMBERG