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Bond Market Insights - Fri, 03 Feb 2023

Markets interpreted the FOMC as more dovish than expected causing an aggressive rally In Asian credit yesterday. INDON and PHIL US$ government bonds gapping higher ups 0.50 to 0.75 in the front-end and 1.25 to 2.50 higher in the intermediate and long ends before fading. Spreads were 7bps to 15bps tighter, off the run higher yielding bonds performing best. Quasi sovereigns lagged, gaining only 0.25 to 1pt,


Benchmark China IG 10-years squeezed 5 to 10 bps tighter while the front end continued to push towards 5%. The desire to pick up paper at these levels has caused the spread between BBB- and A- rated paper compress just under 15bps. Real money accounts were extending in the State Owned Co. perpetual sector, selling short calls (NC23’s) and buying NC25 and NC26 paper, pushing prices up 0.25 to 0.375 better by the close. China financials managed 1-3bps improvement, with Chinese asset managers adding bank Tier 2 subordinated paper and leasing co bonds. China Property was soft, after the recent rally, Country Garden trading down as much as 2pts, which could be attributed to a bit of Adani contagion.


On the rates side the ECB committed to a further 50bps hike in March, although there no further forward guidance. The market expects another 25bps in May. The Bank of England voted 7-2 in favour of the hike, but the forward guidance was dovish, Sanjay seeing just one more hike to 4.25% in March.


Euro and sterling weakened as yields tumbled on bets that the hiking cycle is nearing an end. The yen was the only G-10 currency to gain against the greenback as the dollar index bounced back from its lowest since April.

Better US jobless claims with initial claims falling 3k to 183k, while consensus had predicted a 9k rise. Continuing claims were down 11k to 1655k, consensus was for a 20k rise. The market is looking for terminal rates to top out at 5.25% presently, but if inflation continues to decelerate, the labour market loosens further and growth is moderates a pause after the March meeting is a possibility, it is a bit of an ask though. Non-Farm Payrolls next..


The Adani saga continues. Yesterday the complex opened significantly lower having had some very low prints on TRACE in New York, ADSEZ 24 had printed at 69.75. Asia was dominated by buyers at the open, pulling bonds back to 3pts down at lunch. Citi cutting leverage on Adani bonds and equities pushed bonds down again, closing around 5 points lower on the day. Buyers have included special situation groups and distressed funds met by selling from real money and retail selling due to leverage being withdrawn.


Overnight the New York Stock Exchange put 3 Adani Group stocks under additional surveillance framework to curb short selling and it was announced that Adani Enterprises will be removed from the Dow Jones Sustainability Indices following a “Media & Stakeholder Analysis triggered by allegations of stock manipulation and accounting fraud”. To counter this Adani is said to be in talks to prepare share pledges to boost confidence. Despite this Adani is opening tighter this morning.

Today credit is firm across Asia on strong macro and light positioning, IG spreads as much as 5bps tighter. SK Hynix paper has tightened 20bps following their 4Q FY12/22 results.

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