The cost of protecting Asian bond issuers against default soared as the decision by U.K. voters to withdraw from the European Union rattled credit investors.
The Markit iTraxx Asia index of credit default swaps surged 17.5 basis points to 153.5 basis points as of 11:51 a.m. in Hong Kong, according to pricing from Nomura Holdings Inc. The gauge is set to close at its highest level since March 28 following its largest increase in more than three months, based on pricing from data provider CMA.
“Judging by the first reactions here in markets, we could see a global systemic event and Asian credit is probably going to be part of it,” Ludovic Colin, a senior portfolio manager for fixed income at Vontobel Asset Management in Zurich, said while the U.K. votes were being counted.
The surge in Asian credit default swaps comes as riskier assets around the world are plummeting in the wake of the U.K. referendum. Voters in the world’s fifth-largest economy on Thursday opted to pull out of the European bloc after more than four decades, a move that sent the pound to its lowest level since 1985 and battered Asian equity markets.
The iTraxx Japan index rose 11 basis points to 79.5 as of 12:43 p.m. in Tokyo, while the iTraxx Australia index leapt 15 basis points to 140 as of 1:06 p.m. in Sydney, according to Citigroup Inc. prices. Both are on track for their biggest gains since March, based on CMA data.
Gavin Goodhand, a money manager at Altius Asset Management in Sydney, said that while credit would remain under pressure in the short term, support should return once markets stabilize.