Emerging debt-Asian bond spreads rally on Fannie, Freddie rescue

HONG KONG, Sept 8 (Reuters) - Asian bond spreads tightened on Monday after the takeover by the U.S. government of mortgage finance providers Fannie Mae and Freddie Mac was seen removing a key source of uncertainty in global credit markets.

A broad measure of risk aversion in the region, the iTRAXX Asia ex-Japan high-yield index ITAHY5Y=IE, tightened 35 basis points (bps) to about 535-540, a Hong Kong-based trader said.

The equivalent investment-grade index ITAIG5Y=IE tightened by 15-20 basis points to about 158, the same trader said.

The cost of protection against a default in South Korean debt also plunged, after widening last week on concerns about a capital flight out of the country. Its five-year credit default swap KOREA5UA=GFI tightened by 20 bps to 115.

The broad rally comes after spreads in Asia had widened on Friday to their widest in two months, weighed down by a host of bearish factors, including concerns over a slowing global economy and political and financial instability in countries such as Pakistan.

"What you have is the U.S. government not putting in immediate cash, but putting its credibility on the line. It's a tremendous help, but it doesn't solve all the problems," said Scott Bennett, a fund manager at Aberdeen Asset Management in Singapore.

"It's good news because it reduces systematic risk in the U.S. financial system. However, this news will likely be displaced going forward by other credit negative news. I still remain cautious," he added.

Other analysts also warned against expecting a sustained tightening in Asian credit spreads, which have more than doubled this year.

Data on Friday showing the U.S. unemployment rate shot up to 6.1 percent in August and that more jobs were lost than expected continued to support the prospect of a slowing global economy. [ID:nN05415312] (For a list of upcoming debt issuance from Asia see [EUB/ASIA] (Reporting by Rafael Nam; Editing by Neil Fullick)