U.S. bank bond investors headed back into the market Thursday, steeling themselves against increasing turmoil in Asia.

On Wednesday, many investors were clearly rattled by news of violent protests in Jakarta, Indonesia, sparked by the nation's economic reforms. India's testing of nuclear weapons added to the sense of unease, and the selling of securities rose.

In response, U.S. bank bond spreads-the basis-point difference between the yields of Treasuries and of corporate bonds-gapped out by 3 basis points, traders said.

But on Thursday, despite little change in the Asian situation, investors returned to scoop up bank bonds, driving yields back to previous levels.

"Everybody is still fearful about the situation in Indonesia," said one bank bond trader. "But we are definitely seeing more buyers today."

Though many of the money-center banks are substantial lenders to Indonesia and other economically troubled Asian countries, the market doubts they will suffer 100% losses, the trader added.

Nevertheless, if problems in the Asian region accelerate, they could hurt Asian bond paper and reverberate in the spreads of U.S. bank bonds.

Asian Yankee bond paper, however, did not fare as well. Analysts and traders pointed out that spreads on these bonds, which are issued by Asian banks in the U.S. market, suffered significantly as investors furiously dumped securities on reports of Indonesia's troubles.

"Renewed social tensions and protests in Indonesia along with setbacks in Korea's reform progress have reminded Yankee investors that the Asian crisis is far from over," said PaineWebber Inc. analyst icardo Kleinbaum, who cranked out a report Thursday to calm jittery Yankee bank bond investors. "Whenever adverse international events occur, the market subtracts a price from all Yankee bonds."

Indeed, according to Yankee bank bond traders, spreads of Indonesia's government paper widened by 125 basis points; Japanese bank paper widened by 50 basis points; and Korea bank paper gapped by 50 in the last week.

Nevertheless, Mr. Kleinbaum said Thursday that the debacle offers a buying opportunity.

"Generalized spread widening in the Yankee sector presents opportunities to buy solid sovereign and corporate credits that have been unfairly penalized by the market's herd mentality," wrote Mr. Kleinbaum.

The market "seems to be more discriminating," he added. "Canadian and European Yankee financial institutions have not been as affected."

Yankee bond analyst Charles R. Mounts at UBS Securities said investors must be prepared to be "more agile than they have been" because there will be "continued volatility in the Yankee bank bond market in 1998."

"Two years earlier investors could buy any Yankee bank, and they performed well," said Mr. Mounts. "The whole market was performing well. However, investors cannot do that now. They must be selective." u

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