China HY held onto the early 1-2pt gains yesterday. Gainers included Zhenro Properties which repurchased some of its bonds in the secondary market, prices rising 3-6pts as real money and retail accounts were encouraged to buy. Yango Group (SUNSHI) announced a debt swap on Thursday, extending the maturity of its 1/22, 3/22 and 2/23 notes to 15/9/23, bonds rose 3 points. We reported gains for China Aoyuan’s ABS extension yesterday. These gains were tempered when REDD reported a default on a CNY 66m onshore trust loan. The market retreated 1pt from the highs, ending 2pts higher. This morning China HY has reversed, moving downwards again, off around 1pt..
US Treasury yields rose as Fed Chair Powell was nominated for a second term, as dealers made space for the 2yr auction, which came at a high yield of 0.623%, well above last month’s 0.481%, tailing the “when issued” price by 1.1bps, the biggest tail since Feb 2020. Dealers were left holding 37.2% or the deal, the highest since April.
The next FOMC meeting is on Dec 15th, when the quarterly “Dots Plot” survey of FOMC participants interest rate expectations will be released. Powell communication of the growing inflation concerns will be closely watched. Fed Funds futures now fully discount two 25 basis point rate hikes next year and 50% chances for a third in 2023. The swaps market is pricing in a 25bps hike in June.
There is no US treasury market in Asia today, as Japan celebrates Labour Thanksgiving and Thursday is US Thanksgiving. The next theme for traders will be year-end balance sheet reduction.
