Asian Bond Protection Costs Decline Ahead of Fed Policy Meeting

The cost of insuring bonds in Asia against non-payment fell amid speculation over the timeline for U.S. stimulus reductions ahead of a two-day Federal Reserve meeting that begins today.

The Markit iTraxx Asia index of credit-default swaps for 40 investment-grade borrowers outside Japan slid by 1 basis point to 128.5 basis points as of 8:34 a.m. in Hong Kong, Westpac Banking Corp. prices show. The gauge has fallen from a three-week high of 136.8 basis points on Dec. 5, according to data provider CMA.

The Markit iTraxx Japan index declined 1 basis point to 74.5 as of 9:27 a.m. in Tokyo, according to Citigroup Inc. prices. The measure was last lower on Dec. 11, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Australia index was little changed at 103 basis points as of 11:37 a.m. in Sydney, according to National Australia Bank Ltd. prices. The benchmark has climbed 2.8 basis points since the end of November, CMA data show.

The Fed may begin reducing asset purchases at its Dec. 17-18 meeting, according to 34 percent of economists surveyed by Bloomberg Dec. 6, up from 17 percent in a Nov. 8 poll.

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.

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