Asian bond risk jumps as Greek 'No' vote seen sparking volatility

SINGAPORE (BLOOMBERG) - Greek voters' rejection of austerity sent ripples through Asian credit markets as bond risk surged to a six-month high.

The Markit iTraxx Asia index of credit-default swap prices leapt 6 basis points to 117 basis points, prices from Westpac Banking Corp. show. That leaves it set for its biggest daily jump since March and highest close since January, according to data provider CMA.

"I guess from here the norm is hedge your bets," said Brayan Lai, the head of research and a portfolio manager at One Asia Investment Partners Pte in Singapore, which manages about US$200 million. "Volatility is definitely back."

Sixty-one per cent of voters backed Prime Minister Alexis Tsipras's rejection of further spending cuts and tax increases in an unprecedented referendum Sunday. The move brings the five-year Greek crisis to a new turn that could culminate with the first exit of a nation from the European currency union.

"There could be unintended consequences," said Singapore- based Tim Jagger, a senior vice president and portfolio manager at Aviva Investors Global Services Ltd., which managed about US$384.5 billion as of March 31. "We need to see what happens now and what this means for other peripheral economies in the euro zone."

Contagion is likely to be contained given the small amount of Greek debt that's held by private investors, according to Jagger.

"Compared to 2011, when risk-aversion spiked, this time the European Central Bank can just open more the tap of quantitative easing, something we didn't have then," he said.

Yield premiums on Asian investment-grade bonds rose about five basis points, a move that was similar to last Monday when the Greek referendum was announced, according to Mark Reade, an analyst at Mizuho Securities Asia Ltd. in Hong Kong.

"We expect Asian credits to be resilient on the Greece situation because based on past performance, people know it's silly to sell when something bad is happening somewhere else not totally related to Asia," said Gordon Ip, a Hong Kong-based senior fund manager at Value Partners Ltd.