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(Bloomberg) — The cost to insure better-rated Asian debt against default is on course to increase in March by the most for any month since 2023, signaling growing concern about the economic impact of the Iran War on the region’s borrowers.
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The credit default swaps are on track to widen by 27 basis points for March after traders indicated a one-basis point increase on Tuesday, a Markit index shows. That would be the biggest monthly spike since August 2023, a time when China’s property crisis was deepening.
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Guages of credit risk around the world have spiked as investors increasingly factor in more negative scenarios for the global economy, the longer the Iran War drags on. Asia is more dependent than any region on Middle Eastern energy flows, and investors have been buffeted over the past month by changing signals from the US administration on the war, leaving them caught between growth and inflation risks.
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“While the ultimate path of the Middle East conflict remains highly uncertain, a more prolonged return to pre-conflict conditions would likely prompt a broader and sharper repricing of growth risk,” Lotfi Karoui, a multi-asset credit strategist at PIMCO, wrote in a report.
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Oil dropped Tuesday after the Wall Street Journal reported President Donald Trump told aides he’s willing to end the military campaign in Iran even if the crucial Strait of Hormuz remains largely closed.
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Some Asian economies are particularly exposed to Middle Eastern energy supplies. The Philippines, which imports almost all of its oil from the region, is trying to find other sources to ease a supply crunch that has triggered the government to declare a national energy emergency.
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Still, the recent widening in credit spreads isn’t without potential opportunities.
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“Recent new issues are priced considerably outside secondary curves, and the coupon carry is good,” said Zerlina Zeng, head of Asia strategy at CreditSights Singapore. “We would participate in good quality names.”
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—With assistance from Ditas B Lopez.
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English (US)