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Bond Insights - Fri, 24 June 2022

China HY continued to see real money sellers yesterday due to fund outflows. Property bonds were down 1-3 pts. COGARD slipped in sympathy after the downgrade, but flows were fairly balanced.

Shimao was in the news, short maturity bonds down 4-5pts. They missed a payment on a $374mm private note held by JP Morgan, raising concern over the sector’s off-balance sheet debt again. Consequently, a request was sent to the Credit Derivatives Determinations Committee.

Meanwhile in the CB world at least two holders of subsidiary Shimao Services Holdings' HKD 3.11bn 2.25% convertible bond due 31 October plan to exercise a put option that was triggered by a lengthy trading suspension of its shares, according to two sources briefed on the matter. The bond will be in default if the issuer fails to redeem the put portion within 44 days from the trigger date, June 14th, according to a notice sent to the bondholders.

Macau gaming slid another 3-5 pts while FOSUNI continued to recover up 5-8 pts with 2023’s performing best after private bank accounts slowed their selling outperforming,

Goldman notes that much of the downward pressure on Asia EM credit is from real money.The main buyers have been insurance co’s, local accounts (in the case of Philippines and Indonesia) and bank treasuries. There is a bit of a flight to quality, IG over HY, Sovs over Corps, on the runs rather than off the runs etc.

This morning’s session, Friday, has been interesting. 10yr IG property is wider by 10-30bps with bids for 10yr LNGFOR (Longfor) and VNKRLE(Vanke) getting hit. There is a rumour circulating that names like Vanke were taken off some onshore mutual funds list of investible bonds

India IG widened 10-15bps. BHARTI perps fell another point, now yielding 8%. Korean new issues are 1-3bps wider in limited liquidity.

Conduit Securities provides liquidity to clients in global bonds and wherever we look traders are complaining about liquidity.

It is interesting to note that even amongst the 10yr US Treasury bonds deliverable into the 10yr future (TYU2) that the prices vary between 98 ¼ and 82 3/8. Worth noting is that as rates rise and prices fall that in the US bond holders will be charged capital gains tax on the appreciation to par, not income tax. Consequently the spread between current coupons and low coupons will widen and liquidity will fade in the off the runs, particularly those where there is significant holdings by Asian counterparties, outside Japan, who are reluctant to sell at a loss.

In Germany the situation is different, the capital gain will be seen as income, two very different dynamics!



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