By TOM WESTBROOK
SINGAPORE- Credit markets turned shaky in Asia on Monday, with the cost of insuring against corporate and sovereign default higher as recession fears rippled across financial markets.
The five-year credit default swap spread on the Markit Itraxx Asia ex-Japan index, comprising sovereign and company debt, rose about 26 basis points to its highest since August last year, according to S&P Global data.
Sovereign spreads for China, Vietnam, Indonesia, Thailand and Malaysia also widened, S&P Global data showed.
Unusually the pressure on credit has followed, rather than led, a tailspin in world stock markets as US President Donald Trump declared a trade war in earnest by levying the highest tariffs on US imports in over a century.
US equity futures were down nearly 4 percent by mid-session in Asia and selling in credit came as equity markets from Hong Kong to Sydney were crumbling.
“It’s not just the equity market. We’ve seen credit spreads gap wider materially and we’re also hearing various fund flows going the other way as well, as people try to get into cash or other commodities,” said Simon Ward, head of debt capital markets for Australasia at Mizuho in Sydney.
He said the debt market would probably enter a “wait and see” mode, with deals on pause as volatility has spiked.
The spread or difference in yield between US Treasuries and the Ice BOFA index of US investment grade debt has widened about 20 basis points since Trump’s tariff announcements and for high-yield US debt it has widened about 96 bps.
Japanese government bond yields hit multi-month lows on Monday, as worries about a global recession from aggressive US tariffs drove safe-haven flows to the securities and spurred speculation that the Bank of Japan will need to wait longer before raising interest rates.
The 10-year JGB yield dropped 5 basis points (bps) to 1.110 percent, its lowest since January 6.
Benchmark 10-year JGB futures were up 0.53 yen at 142.18 yen, after rising to their highest since December 13 earlier. Bond yields fall when prices rise.
Trump said on Sunday aboard Air Force One that tariffs were a necessary “medicine”, and signaled a willingness to accept a rout in equity markets as a result.
Japanese Prime Minister Shigeru Ishiba said on Monday the government will continue to ask Trump to lower tariffs against Japan.
“Downward pressure on rates is likely to be especially strong in Japan, which is not expected to impose any retaliatory tariffs” that could stoke domestic inflation, Mizuho Securities analysts Noriatsu Tanji and Yurie Suzuki said in a note.
In terms of BOJ policy, “we now see a greater likelihood of the rate rise being pushed back to September or later” from a main scenario for July, they said.
The two-year yield which is more sensitive to monetary policy expectations, fell 2.5 bps to 0.585 percent, and had earlier dropped to as low as 0.54 percent for the first time since November 15.
The five-year yield fell 3 bps to 0.745 percent, after opening Monday at 0.725 percent, a level last seen on December 26.
The 20-year yield declined as much as 4 bps to 1.88 percent for the first time since January 29. The 30-year yield began the session at the lowest since October 31 at 2.195 percent.
