Indian Banks Lead Asian Bond Risk to Lowest in More Than a Month

Perceptions of Indian bank risk improved the most in Asia in the past week as the cost of insuring the region’s corporate and sovereign bonds slid to the lowest in more than a month.

ICICI Bank Ltd., India’s second-largest lender by assets, IDBI Bank Ltd. and Bank of India are the three best performing issuers in the Markit iTraxx Asia index since Feb. 5, according to data provider CMA. The gauge of 40 investment-grade borrowers outside Japan is falling for a sixth consecutive day and is poised to close at its lowest level since Jan. 6, Australia & New Zealand Banking Group Ltd. prices and CMA data show.

Global investors made their biggest monthly purchase of Indian debt in almost two years last month, as Finance Minister Palaniappan Chidambaram said Jan. 30 the current-account deficit will narrow. The nation’s local-currency notes bucked an emerging-market rout to gain 1.4 percent this year, Asia’s best performance, HSBC Holdings Plc indexes show. Despite signs of economic improvement, lenders’ profitability is likely to remain subdued in the next 12 months, according to Standard & Poor’s.

“There are other worries in other emerging markets that may have distracted investors, and, from a relative perspective, India is not an immediate concern,” said William Mak, a Hong Kong-based credit analyst at Nomura Holdings Inc. “We are not that positive in terms of the fundamentals of Indian banks. We do expect further deterioration in asset quality.”

Bank Risk

ICICI’s credit-default swaps have fallen 16 basis points to 299 basis points since Feb. 5, according to data from CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. Contracts on IDBI also slipped 16 basis points to 293 basis points, the least since August, the data show.

The improvement comes after Indian bank-bond swaps jumped to a three-month high in December following Standard & Poor’s downgrading IDBI to junk.

The Markit iTraxx Asia index declined 3 basis points to 136 basis points as of 8:17 a.m. in Hong Kong, ANZ prices show.

The Markit iTraxx Australia index retreated 3 basis points to 99 basis points as of 11:18 a.m. in Sydney, according to Westpac Banking Corp. The gauge is on course for its lowest close since Jan. 15, according to CMA.

The Markit iTraxx Japan index fell to 75.3 basis points as of 9:16 a.m. in Tokyo, Citigroup Inc. prices show. The measure slid 3.5 basis points from its close on Feb. 10, according to Citi, after Japanese markets closed yesterday for a national holiday.

Credit-default swap indexes are benchmarks for protecting 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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