Emerging debt-Asia bonds recover but caution prevails

HONG KONG, Nov 26 (Reuters) - Asian bonds gained on Monday for a second consecutive session as regional stocks rallied, but investors are still wary of a prolonged global credit crunch sparked by the U.S. mortgage crisis.

The widely followed iTRAXX Asia ex-Japan high-yield index <ITAHY12Z8A=ITX> narrowed by 5 to 10 basis points (bps) to around 345, indicating reduced risk aversion. That was tighter than on Thursday, when the index closed at 362/367 bps.

"We are seeing some take the opportunity to add some more risk after they didn't have the chance last week," said a Hong Kong-based trader.

"Spreads are tighter than last week, but they are still not that much tighter than earlier this month," he added.

Asian bonds have weakened significantly since late October as global markets have been hit by worries that bad investments in U.S. subprime mortgages are hitting financial firms and reducing the availability of credit.

Although Asian stocks rallied on Monday, caution is still the prevailing mood in credit markets, traders said.

"A lot of people still don't feel like they ought to be adding risk at this stage," said one trader.

Spreads on benchmark bonds in ports-to-telecoms conglomerate Hutchison Whampoa Ltd (0013.HK: Quote, Profile, Research, Stock Buzz) due in 2033 <USG4672CAC94=DBAB> narrowed to around 208/198 basis points, about 7 to 10 basis points narrower than late last week.

Philippine five-year credit default swaps (CDS) <ICICB5UA=GFI> -- insurance-like contracts that protect against defaults or restructuring -- narrowed for a second session trading at 186/191 bps from 196/204 on Friday.