BLBG: Asia Bond Risk Declines After Unexpected U.S. Home Sales Growth
The cost of protecting Asia-Pacific corporate and government bonds from default declined after unexpected growth in U.S. durable-goods orders and new-home sales spurred optimism of an end to the global recession.
The Markit iTraxx Japan index of credit-default swaps fell 15 basis points to 385 at 10:12 a.m. in Tokyo, Barclays Capital prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was down 2.5 basis points at 352.5 as of 9:03 a.m. in Hong Kong, according to ICAP Plc.
February’s 3.4 percent increase in orders for long-lasting goods such as machinery and computers was the biggest gain in more than a year and the first in seven months, Commerce Department figures showed yesterday. Another Commerce Department report indicated new-home sales jumped 4.7 percent last month from a record low pace in January.
“Data releases gave further momentum to the improvement in risk appetite and fuelled hopes that economic conditions were beginning to stabilize,” Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Calyon, wrote in a research note today. “Although we remain bearish on the U.S. housing market, the gradual reduction in home inventories is paving the way to a recovery next year.”
The Dow Jones Industrial Average reversed a 110-point drop in the final hour of trading as investors overcame concern about a disappointing auction of Treasury notes. Asian technology and finance shares rose today on the U.S. reports.
The Markit iTraxx Australia index was quoted 5 basis points lower at 355 as of 12:16 p.m. in Sydney, Citigroup Inc. prices show.
Australian States
Contracts on Australia’s government debt were unchanged at 125 basis points, Citigroup prices show. Australian Federal Treasurer Wayne Swan yesterday offered to guarantee as much as A$39 billion ($27 billion) in state bonds to help regional governments raise funds after the global credit crisis drove up borrowing costs.
The nation’s lowest benchmark interest rates in four decades and grants to first-time home buyers are unlikely to cause a U.S.-style subprime mortgage crisis, Anthony Richards, head of economic analysis at the Reserve Bank of Australia, said in Sydney today.
The Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada declined 3 basis points to 182.5 yesterday, according to CMA DataVision. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 4.5 basis point to 166.5, JPMorgan Chase & Co. prices show.
Credit-default swap indexes are benchmarks for protecting bonds against default, and traders use them to speculate on changes in credit quality. An increase in the price suggests deteriorating investor perceptions of credit quality and a decrease indicates improvement.
The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt.
