Asia Bond Risk Climbs to Two-Week High on Uncertainty in Europe

Asia-Pacific bond risk climbed to the highest in two weeks after Italy’s elections sparked fresh concerns over Europe’s debt crisis. Citic Telecom International Finance Ltd. began marketing a sale of dollar-denominated notes.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan advanced to the highest since Feb. 11, according to credit-default swap traders. Citic Telecom, a unit of China’s largest state-owned investment firm, is offering 12- year securities in the low 6 percent area, according to a person familiar with the matter. Bank of Communications Co. plans to sell 10-year debt while Korea Housing Finance Corp. is marketing covered bonds due 2018, people familiar with those deals said.

Former Italian Prime Minister Silvio Berlusconi, running to reverse austerity measures, called for a recount of the vote after winning a blocking minority in the Senate. Voters in Europe’s second-most indebted economy are repudiating budget rigor, instigating fresh fears about the region’s financial crisis.

“The market is broadly weaker following overnight flows largely driven by uncertainty over the outcome of Italy’s elections,” said Raymond Chia, the Singapore-based deputy head of credit research for Asia fixed-income at Schroder Investment Management Ltd., which managed the equivalent of $327.4 billion of assets as of Sept. 30. “Investors are concerned the country may abandon some of the austerity measures.”

Citic Telecom, based in Hong Kong, plans to use the proceeds from its bond sale to help buy a 79 percent stake in Companhia de Telecomunicacoes de Macau, S.A.R.L. from Cable & Wireless Communications Plc and Portugal Telecom SGPS SA.

Covered Bonds

Bank of Communications is marketing its sale of as much as $500 million of notes at a spread of about 210 basis points more than Treasuries, the person familiar with the matter said, asking not to be identified because the terms aren’t final.

Korea Housing Finance, a state-run mortgage provider, is marketing the country’s first sale of dollar-denominated covered bonds in 19 months at a spread of about 110 basis points.

The Markit iTraxx Asia index rose 4 basis points to 111.5 basis points as of 8:19 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show.

The Markit iTraxx Japan index increased 3.5 basis points to 127 basis points as of 9:09 a.m. in Tokyo, according to Deutsche Bank AG prices. The gauge is set for its highest close since Feb. 8, according to data provider CMA.

Australian Bonds

The Markit iTraxx Australia index advanced 3 basis points to 118 as of 10:38 a.m. in Sydney, National Australia Bank Ltd. prices show, poised for its highest since Feb. 8, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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