ASEAN Credit Default Swap (CDS) Spreads Spike!

Credit default Swaps (CDS) are the cost to insure debt from default risks.

It appears that ASEAN’s CDS spreads has spiked this week. In other words, market’s perception of ASEAN default risks has sharply risen (all charts below from Deutsche Bank—based on recovery rate of 40%).

Philippine CDS fast approaches the October highs! Yields of 10 year peso government bonds climbed 17.6 bps week-on-week. More importantly, short term yields have been soaring for three successive weeks. Has the dramatically flattening yield curve been the reason behind the CDS ramp? Or has this been due to a EM contagion or a combo?

Malaysian CDS passed October levels and now swiftly nears the January 2014 highs, or then, during the climax of the EM taper tantrum turmoil. Yields of Malaysian 10 ringgit bonds marginally slipped this week, but still drifts at the highs of the 2010 levels

Has current pressures in Malaysian’s currency and stock markets functioned as the trigger? 

Indonesia CDS have reached October highs. Yields of 10 year rupiah bonds closed the week marginally changed but had a short bout of sharp intraweek volatility. 10 Year yields are just off the January taper tantrum highs. Has the CDS spike been perhaps due to the record low of the rupiah and or contagion?

Thailand CDS has also passed October 2014 highs, but has partly backed off the past days. Yields of 10 year baht climbed by some 10 bps this week. However current yield levels remain at the lows equivalent to 2010 levels.

Aside from the baht drifting at January levels, Thai’s stock markets just suffered a stunning intraday crash last Monday which it had mostly recovered this week.

If debt markets continues to price in higher ASEAN default risks, will this be positive for stocks?  Those January 2014 CDS peaks coincided with the stock market lows during the EM taper tantrum that commenced in May 2013. Will this time be different?

We truly live in interesting times!