Spreads on the usually tight Asian credit market have widened following a global sell-off in fixed income and equities due to market jitters. "This is following a sell-off in all asset classes," said a trading head at a European house. Credit traders said spreads on investment-grade names have moved out five to seven basis points in the last week, while emerging-market credits have widened more dramatically, partly driven by global hedge funds scaling back their exposure.
For instance, five-year credit protection on the Philippines jumped out from 160bps mid-market two weeks ago to as wide as 230bps last Wednesday. "Right now credit spreads are about the same level as they were three-to-four months ago," said a dealer at a bulge-bracket house. "We'll have to wait and see if this is just a correction or a fundamental change in sentiment."
Credit officials in the region, however, said the wider spreads should help boost synthetic CDO issuance in the region, as end users have been slowing down their appetite for traditional deals, given the tightness in credits this year. "A lot of investors have been waiting for this moment," said the dealer.
