The ratchet down of the credit market Monday due to worries about Bear Stearns’ solvency and Fannie Mae have produced widespread collateral damage (no pun intended).
Bloomberg reports that credit default swap prices, which rose sharply for US and European issuers, reflecting heightened worries about credit risks, have also increased for a large range of Asian borrowers.
The cost to protect bonds in the Asia-Pacific from default surged to the highest since the gauges started as the prospect of increasingly restrictive borrowing conditions boosted demand for credit-default swaps.
Contracts tied to Malaysian government debt rose to a new high after Standard & Poor’s said late yesterday private investors may “stand aside” after the ruling coalition suffered its worst election result in 50 years….
The cost to protect Japanese investment-grade corporate bonds has risen more than 10-fold since May as losses on securities tied to U.S. subprime mortgages increase, pushing up funding costs in the world’s capital markets. One or more of four main indexes in Asia, which started in 2004, have set records on about half of the trading days this year.
The Markit iTraxx Japan Series 8 benchmark index rose 17 basis points to 197 basis points as of 10:55 a.m. in Tokyo and earlier traded as high as 201 basis points, according to Morgan Stanley. The previous Series 7 benchmark reached a low of 16 basis points on May 17, CMA Datavision prices show….
Credit-default swaps on Malaysia’s government bonds rose 16 basis points to a record 123 basis points, according to BNP Paribas prices. That means it costs $123,000 a year to protect $10 million of the country’s debt from default for five years.
Concern the credit crisis is deepening in Asia drove borrowing costs between Australia’s lenders to the highest since April 1995. The three-month bank bill swap rate rose to 8.11 percent compared with 8.02 percent yesterday and 7.50 percent a month ago. The Markit iTraxx Australia Series 8 Index climbed 18 basis points to breach 200 basis points for the first time.
The Australian benchmark for credit-default swaps has increased almost five-fold since the current Series 8 index was introduced on Sept. 20, data compiled by Bloomberg shows. New benchmarks are created every six months when firms are added or dropped depending how actively they are traded.
“There are fears of more hedge funds unwinding as banks are reducing leverage through their prime brokerage accounts,” said Mark Bayley, director of credit and structuring at ABN Amro Holding NV in Sydney. “There are more and more buyers of credit protection and no sellers around and it’s pretty difficult to see where we are going to get positive news from.”….
The index of 20 high-risk, high-yield borrowers in Asia outside Japan increased 20 basis points to 640 basis points and the investment-grade benchmark increased 17 basis points to 217 basis points. The indexes gain when perceptions of credit quality deteriorate…..
“The market is very illiquid. People are sidelined because even if the market rallies, it only lasts for one or two hours,” Rattanavan of BNP Paribas said.