Source: IHS Markit

Rajiv Biswas, Asia Pacific Chief Economist and Sage Patel, Director of Fixed Income Pricing 

Key Points:

  • Among the sovereigns, CDS spreads for New Zealand tightened the most, while Republic of Korea saw the largest widening of spreads
  • Australian banks saw the largest tightening of spreads in July
  • Widening corporate CDS spreads seen for some Japanese corporates
  • Energy sector saw the most tightening in spreads among industry sectors observed in July, helped by improving oil prices

IHS Markit Observations:

Most Asian sovereigns continued to see tightening CDS spreads in July (except South Korea and Japan) reflecting improving APAC macroeconomic conditions, notably strong export growth and continued positive growth in manufacturing for most major APAC economies.

South Korea saw the largest widening of sovereign CDS spreads, mainly attributable to escalating military tensions over North Korea’s launching of two intercontinental ballistic missiles (ICBM).

At the other end of the APAC sovereign CDS spectrum, New Zealand spreads tightened the most, helped by continued favorable economic indicators including rapid export growth and strong business conditions, while a flat CPI reading for Q2 is expected to keep the RBNZ on hold in the near term.

In the corporate space, Australian banks saw the largest tightening of spreads ahead of the Reserve Bank of Australia (RBA) monetary policy meeting on 1 August 2017, on expectations policy rates would remain unchanged.

Widening CDS spreads for some Japanese names such as Softbank Group Corp. and Marui Group Co., Ltd. persisted in July. Spread behavior for Softbank Group Corp. in particular was fueled by concerns over its aggressive acquisition strategies for emerging technological companies.

 

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