Bloomberg News

Asia-Pacific Bond Risk Surges as Europe Debt Turmoil Intensifies

March 17, 2013

The cost of insuring corporate and sovereign bonds in the Asia-Pacific region against non-payment surged as a levy on Cyprus bank deposits spurs renewed turmoil in Europe. Taiwan Semiconductor Manufacturing Co. plans to meet investors from today about a possible dollar-denominated note.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan jumped five basis points to 106 basis points as of 10:17 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The gauge is set for its biggest one-day increase since Feb. 4, according to data provider CMA. Taiwan Semiconductor has hired Goldman Sachs Group Inc. to arrange meetings with investors in the U.S., Asia and Europe, according to a person familiar with the matter, who asked not to be identified because the details are private.

Euro finance ministers reached an unprecedented agreement on March 16 forcing depositors in Cypriot banks to share in the cost of the latest euro-zone bailout. While Cyprus accounts for less than half a percent of the 17-nation euro economy, the concern is that the one-time tax on accounts could trigger bank runs across Europe and further destabilize the financial system.

“More contagion fears will spread through investors and it will encourage depositors in the European periphery to move their funds to a safer place -- either under the pillow or to Germany,” Mark Bayley, a Sydney-based credit strategist with advisory company Aquasia Ltd., said. “This is essentially a bail-in of depositors, and sets a dangerous precedent.”

The Markit iTraxx Australia index rose five basis points to 107.5 basis points as of 1:03 p.m. in Sydney, according to National Australia Bank Ltd. prices. The gauge is poised for its largest daily gain since Feb. 25, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

Japanese Bonds

The Markit iTraxx Japan index climbed four basis points to 107.5 basis points as of 11:05 a.m. in Tokyo, according to Deutsche Bank AG prices. That’s on course for its highest close since March 7, according to CMA.

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: Benjamin Purvis in Sydney at bpurvis@bloomberg.net

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


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