Updated: Apr 1
Safe haven global rates rallied on Friday as Covid worsens in Europe. The entire German yield curve fell back into negative territory. 30yr bunds, which were at 0.4% in mid-October, got to -0.02%, while 2Y yields dropped to -0.79%, the lowest since early August. Money markets were pricing in a 10bps hike by Dec 2022, now they show the probability as being just above 50%. The scarcity of high-quality assets remains an issue, Jan22 Treasury discount paper (Bubills) are now at -1.02%.
US Treasury yields flattened despite the hawkish comments out from Waller and Clarida, calling for Fed to taper faster as both voiced concerns on inflation. The market is pricing in a 67% chance of a rate hike in June 2022, according to FedWatch.
This morning IG started slowly, with holidays in Japan and US coming up later in the week. Spreads largely unchanged. Headlines that Bharti Airtel is raising tariffs caused the name to tighten of 2-5bps on light activity. China Huarong continued to be bought in the 2’s and 10’s.
China HY property bonds were buoyant, up to 1pt higher, despite property stocks being down 1-3%. Flows were dominated by short covering in benchmark quality names Central China Real Estate rallied 3-5pts on the parent company’s strategic partnership and funding plan with onshore regional banks. Greenland was 2pts higher on real money demand, China Aoyuan also rallied 1-2 pts on news of its onshore ABS extension. News emerged that some debtors of construction company Honghua Group would default on around $100mm of debt hit HONHUA 6 ⅜ 08/01/22 down by 12 points.