Emerging debt-Asian bond spreads narrow; Indian banks rally

HONG KONG, July 23 (Reuters) - Asian bond spreads narrowed significantly on Wednesday after a slump in oil prices eased inflation concerns, while the cost of protection against Indian banks dropped after the government won a key vote of confidence.

The iTRAXX Asia ex-Japan high-yield index ITAHY5UA=ICAP, a key measure of risk aversion, narrowed by 20 basis points to 518/523 basis points (bps), while the investment-grade index ITAIG5UA=GFI tightened by 12 basis points to 132/134.

"It's all about oil coming down after going so strong, but we'll still need to wait at least a couple of days to see if this rally has legs," said a Hong Kong-based trader.

Oil prices fell to a six-week low on Tuesday amid expectations U.S. energy demand will fall and that a hurricane pushing through the Gulf of Mexico will spare most offshore oil production. Crude was down 60 cents at $127.85 as of 0345 GMT.

Oil has dropped from a July 11 peak over $147 a barrel, a welcome relief for a region where spreads have surged over the past couple of months amid the prospect of surging fuel and food costs, as well as a continued global credit crisis.

The iTRAXX high-yield index had hit a record just above 650 in mid-March, but the rescue of U.S. investment bank Bear Stearns sparked a rally that saw spreads tighten as low of 420 in early May before they began widening again.

The prospects of rising interest rates to contain inflation has remained a dominant concern. Later on Wednesday, Malaysia and Singapore are each expected to say the annual inflation rate jumped in June to its highest level in more than 26 years. [ID:nKLR227325] and [ID:nSP81367]

Few countries have been immune, with Australia saying earlier in the day core inflation last quarter accelerated to its fastest annual pace in 17 years. [ID:nSYD49292]

INDIA RELIEF

The cost of protection against Indian banks dropped after the government won a vote of confidence in parliament on Tuesday that ensures the survival of the ruling coalition and a civilian nuclear deal with the United States. [ID:nISL288787]

State Bank of India's (SBI) (SBI.BO) five-year credit default swaps (CDS) SBI5YUSAC=MP, or insurance-like contracts that protect investors against defaults, narrowed by about 15-20 basis points to 230.

ICICI Bank's (ICBK.BO) senior debt five-year CDS ICIC5YUSAC=MP narrowed by a similar amount to 347. FIVE-YEAR CREDIT DEFAULT SWAPS

Bid/Ask spread

Current Week ago Korea Dev Bank 140/170 140/170 Hutchison ~/127 133/~ PCCW-HKT 135/200 160/200 China 52/60 ~/74 Indonesia ~/265 ~/298 Korea 99/103 115/120 Malaysia 109/116 126/~ Philippines 225/245 260/270

~no bid or ask spread For CDS prices double click on GFICDS

ASIAN BENCHMARK DOLLAR BONDS

Coupon Maturity Bid price Bid spread

5-YEAR

------

DBS Bank 7.13 15-May-11 105.49 153

Malaysia 7.50 15-Jul-11 107.74 121

ICICI Bank 5.75 12-Jan-12 93.76 436

Petronas 7.00 22-May-12 107.25 142

Hutchison 6.50 13-Feb-13 100.40 292

Chartered Semi 6.25 4-Apr-13 96.24 372

Korea 4.25 1-Jun-13 96.86 151

United Overseas 4.50 2-Jul-13 94.88 222

PCCW-HKT 6.00 15-Jul-13 101.18 225

China 4.75 29-Oct-13 100.01 127

10-YEAR

-------

Hutchison 6.25 24-Jan-14 99.33 340

Korea 4.88 22-Sep-14 98.79 99

PCCW-HKT 5.25 20-Jul-15 87.93 339

Woori Bank 6.13 3-May-16 96.99 252

Penerbangan 5.63 15-Mar-16 105.51 68

Philippines 8.75 7-Oct-16 111.50 278

Indonesia 6.88 9-Mar-17 96.50 332

ICICI Bank 6.38 30-Apr-22 85.09 374

Petronas 7.88 22-May-22 120.22 162 (Reporting by Rafael Nam; Editing by Neil Fullick)