China HY fell yesterday after the embattled China Aoyuan "surprisingly" hired financial advisor Admiralty Harbour Capital to assess their capital structure following the Moody’s downgrade to Caa2 and amid reports of having missed a payment on a small trust loan. Their real test comes in January when two bonds mature. $188mm CAPG 4.2 01/20/22 and $500mm CAPG 8 ½ 01/23/22. Perhaps they should follow the path of Yango and work on a debt extension. Aoyuan bonds were down as much as 5pts, while the sector slipped 2pts.
Not much to say on China IG with the US Treasury market closed in Asia time. Export Import Bank Malaysia (EIBMAL) 1.831% 26 finally caught a bid and tightened 3bps as the dealers’ overhang finally cleared. A couple of China new issues were priced, both sponsored by exclusively Chinese syndicate groups. $500mm Shandong Energy YGCZCH 2.9 11/30/24 to market at 2.9% and $600mm Chengdu Communications CDCOMM 2.2 12/01/24 at 2.2%. Chengdu Communications attracted 22 syndicate members. Each of these will be locking bonds away in their vaults, so don’t expect much liquidity.
Atlanta Fed President Bostic seemed happy with the decision to retain Powell in the main seat, noting the “helpful” development as they approach some critical decisions. Seen as hawkish this pushed Treasury prices lower and the curve steeper in early trading. Strong demand for the 7-year auction boosted the market leading to the unwinding of curve flattening trades. Biden, Powell, Brainerd, and Yellen all emphasized the importance of inflation-fighting when reacting to the Fed Chair decision. The acceptance of the presence of inflation has taken the edge off 5yr US treasury inflation bond breakevens, which is where market participants believe inflation will be in the next 5 years, the rate fell from 3.21% to 3.02% in the past week.
Further south, Erdogan helped push Turkish lira (TRY) towards 13.00, a slide of over 20% in a week. He defended the drastic interest rate cut by his independent national bank, while reiterating that he wants to win his "economic independence war" despite widespread criticism.
Today we have a lot of data to digest with Jobless Claims, Q3 GDP (revision expected +.2 to 2.2%) and Durable Goods opening the market followed by Personal Consumption, New homes data, and the University of Michigan survey at 10am, then FOMC minutes at 2pm, then everyone can take a well-deserved break for Thanksgiving. Happy Holidays!