Thu, 25 Nov 2021
The slump in lower quality China high yield property bonds continued yesterday, prices down as much as 4pts. Better quality names such as Greenland were pretty much unscathed and were difficult to source. KAISAG was also well supported as Redd reported debt extension plans. As details emerge this morning the property sector is down another points, while Kaisa has cracked, sliding 2 points. There is a 2.5pt consent fee for the 18 month extension and the deal needs 95% acceptance. The offer will expire 2/12/21.
China IG turned soft in the afternoon. TENCNT 30 widened 5bps after China suspended Tencent Holdings from updating its existing or launching any new apps as part of “temporary administrative guidance”. This includes WeChat.
In Europe, Greece and Italian government bonds are underperforming the core markets, BTP-bund spread widening to +130bps, as the expiration of PEPP (Pandemic Emergency Purchase Programme) nears and while there is uncertainty over the size of the Asset Purchase Programme. Business confidence in Germany dipped, with the monthly ifo Business Climate Index for November hitting 96.5 (expected 96.7), the 5th consecutive decline and worst reading since February.
Outgoing ECB rep Weidmann commented that the ECB bond buying program should not be transferred to other programs and cautioned that although he does not support a prolonged loose monetary policy an abrupt hike could create problems for both financial markets and the economy. The timing of ECB Panetta’s call for patience in withdrawing stimulus as inflation is transitory was unfortunate. It coincided with the ECB staff union IPSO demanding salary adjustments for 2021 due to higher inflation.
It was a mixed session for US Treasuries with the curve flattening on back of the Fed minutes, which supported faster tapering, and Initial jobless claims, which fell to the lowest level since 1969. US markets are closed today and dealing desks will be sparsely populated on Friday. Monday and Tuesday next week are effectively the only full trading sessions left for November.
