Aug 08, 2011 (LBO) – A 10-year Sri Lanka sovereign bond was quoted weaker Monday following a downgrade of US debt by Standard and Poor’s, though the rating agency said Asian sovereigns were safe in the short term. “However, the U.S. rating change, together with the weakening sovereign creditworthiness in Europe, does point to an increasingly uncertain and challenging environment ahead,” S & P which toppled the US off its triple A status to ‘AA+’ said Monday.
“Uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence.
“The potential longer-term consequences of a weaker financing environment, slower growth, and higher risk aversion are negative factors for Asia-Pacific sovereign ratings.”
Sri Lanka’s 10-year bond was quoted around 6.1/5.9 percent levels Monday on the Bloomberg trading system down from 5.9/5.8 percent levels Friday.
The bond is still trading below its coupon. The last 10-year bond was issued at 6.25 percent.
Spain’s 10-year bond was trading at 6.1 percent, Italy, much larger economy 6.2 percent, Portugal 10.3 percent and Greece 14.4 percent.
On Monday Gold topped 1,704 dollars an ounce in Hong Kong in morning trade. Many Asian stocks opened weaker. Korea stocks were down 6.3 percent, Singapore down 4.6 and Shanghai down 3.8 percent.
S & P said if the US or European economics contracted again Thailand, Taiwan, Korea, Malaysia, the Philippines, Japan, Australia, and New Zealand could experience export related slowdowns.
“At the same time, the Asia-Pacific sovereigns that have weaker external positions could come under pressure as international liquidity tightens,” S & P said.
“Some may require additional external assistance to prevent sharp economic adjustments.
If external bond markets weaken further, countries like Sri Lanka could also be at risk, the rating agency said.
“Those with financial systems reliant on off-shore markets may face reduced liquidity and a heightening of refinancing risk in the near term,” S & P said.
“To varying degrees, Pakistan, Sri Lanka, Fiji, Australia, New Zealand, Korea, and Indonesia may be affected.”
S & P raised the outlook of Sri Lanka’s B+ sovereign rating to positive in July ahead of a billion dollars sovereign bond sale.