Dec. 3 (Bloomberg) -- The cost of protecting Asian bonds from default declined after the U.S. Federal Reserve extended the term of three emergency-loan programs in a bid to ease the global credit crisis.

The Markit iTraxx Asia credit-default swap index of 50 investment-grade borrowers outside Japan, including Hutchison Whampoa Ltd., fell 20 basis points to 405 at 10:24 a.m. in Hong Kong. The region's benchmark for high-risk, high-yield borrowers dropped 50 basis points to 1,150, according to Barclays Plc.

``Credit and equity markets in our region are getting a benefit from the Fed's actions,'' said Michael Bush, head of credit research at National Australia Bank Ltd. in Melbourne. ``The Fed is responding as needed at the moment and they'll continue to do so.''

The Primary Dealer Credit Facility and Term Securities Lending Facility, created in March, and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, begun in September, will be lengthened to April 30 from January 30 ``in light of continuing strains in financial markets,'' the Fed said yesterday.

The three facilities, part of the U.S. central bank's efforts to cushion financial markets from the worst crisis in seven decades, had about $304 billion in loans outstanding as of last week. The Fed has already authorized other programs through April to support the commercial paper market and money-market funds and to swap dollars with 14 central banks.

The primary dealer facility, or PDCF, provides loans to Wall Street bond dealers. The Term Securities Lending Facility, or TSLF, auctions loans of Treasury securities to the same bond dealers in exchange for collateral such as mortgage-backed securities.

Qantas Risk Soars

The perceived risk of owning the debt of Qantas Airways Ltd. soared after Australia's biggest airline confirmed that it is in merger talks with British Airways Plc.

Five-year credit-default swaps on the Sydney-based carrier's debt rose 40 basis points to 345 as of 2:08 p.m. in Sydney, according to Citigroup Inc. prices. The cost to protect a $10 million investment in Qantas bonds from default is equivalent to $345,000 annually.

The iTraxx Australia index fell 10 basis points to 370, Citigroup data show. The benchmark is tied to the debt of 25 companies, including Qantas Airways Ltd. and BHP Billiton Ltd.

``The fear of counterparty risk has affected the CDS market and there's very little trading as a result,'' said Mark McCarthy, a credit trader at ABN Amro Holding NV in Sydney. ``It's a catch- 22. The more volatile it becomes, the less liquid it becomes. The less liquid, the more volatile.''

The Markit iTraxx Japan index fell 5 basis points to 355 in Tokyo, according to Morgan Stanley.

Thai Political Turmoil

Contracts on Thailand's sovereign debt widened 5 basis points to 350 today, according to BNP Paribas SA, after Prime Minister Somchai Wongsawat was forced from office by a court after six months of protests against his government culminated in a siege of Bangkok's airports.

The Constitutional Court dissolved the ruling People Power Party, the second time in three months the judges have ousted a leader. Somchai said he accepted the decision and would name a deputy to take over.

``Another lose-lose situation in Thailand,'' Brett Williams, head of Asia credit research at BNP Paribas in Hong Kong, said in a note to clients. ``From having a dysfunctional government to no government at all, the sovereign edges closer to anarchy.''

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. The swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to debt agreements.

A basis point, or 0.01 percentage point, is worth $1,000 on a swap protecting $10 million of debt.

To contact the reporters on this story: Aaron Pan in Hong Kong at Apan8@bloomberg.net; Oliver Biggadike in Tokyo at obiggadike@bloomberg.net.

Last Updated: December 3, 2008 00:44 EST