UPDATE: Greek Elections Boost to Asian Debt May Be Fleeting

-- Boost to Asian bond market sentiment from Greece may not last, say bankers.

-- But other events could provide opportunities for bond sales, they say.

(Refreshes market data in 3rd and 4th paragraphs, adds analyst's comments in 8th-10th paragraphs, bond detail in 14th paragraph.)

 
   By Natasha Brereton-Fukui 
 

SINGAPORE--Asian debt markets got a boost Monday, as hopes that a pro-austerity Greek coalition government might be formed, following victory by the conservative New Democracy party at the polls, raised the prospect that a euro-zone fracturing could be avoided.

Bankers said the more upbeat mood from Greece may be short-lived, given the huge challenges still facing its authorities, but that other upcoming events could supply positive surprises, potentially providing opportunities for bond issuance.

Spreads on the Markit iTraxx Asia ex-Japan investment-grade credit default swap index were quoted as low as 171-173 basis points early in Asia Monday, versus 181.79 basis points late Friday, and were recently around 174-176 basis points.

U.S. Treasurys, meanwhile, sold off as investors took profits on the risk-positive news. The benchmark 10-year yield rose as high as 1.650% from 1.586% on Friday. It was last seen at 1.616%.

New Democracy has already begun informal talks with the Socialist party, and a coalition is likely to be formed by Wednesday, officials said Monday. But analysts still worry that any coalition could prove to be short-lived.

Such concerns will provide the backdrop as investors look ahead to a meeting of European finance ministers later this week and a summit of European leaders next week.

But analysts also noted the potential for boosts to sentiment from a gathering of Group of 20 leaders in Mexico Monday and Tuesday, and a Federal Open Market Committee meeting Wednesday.

Krishna Hegde, head of Asian credit research at Barclays, recommended holding a neutral position on Asian credit until after the European leaders' summit.

"I expect high-grade bond issuance to pick up over the next couple of weeks, given there are funds that need to be deployed and we have seen limited outflows out of Asian credit," Mr. Hegde said.

High-yield issuance is trickier because sentiment isn't positive toward all issuers. But those firms that need financing have been able to fund themselves via loans and equity, he said.

After record Asian dollar bond issuance in the first few months of this year, sales have slowed to a trickle as increased risks in Europe have raised concerns about global economic and financial contagion, spurring investors to demand higher risk premiums.

Bond issuers have to be ready to move rapidly to capitalize on any brief windows of positive sentiment as they arise.

Korea Exchange Bank (004940.SE) said Monday it was seeking to price a five-year benchmark Rule 144A/Reg S dollar bond later in the day to yield around 275 basis points over comparable Treasurys.

Hang Lung Properties Ltd. (0101.HK) also said it was seeking to price a benchmark 10-year Reg S dollar bond as early as Monday to yield around 360 basis points over comparable Treasurys.

--Megumi Fujikawa in Tokyo contributed to this article.

Write to Natasha Brereton-Fukui at [e-mail]