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Bond Market Insights - Fri, 26 Jan 2024

DJIA +0.6% / S&P +0.5% / CCMP +0.2% / CRUDE +2.7% $77.1 / GOLD +0.4% $2,021 / VIX +2.4% $13.45:


S&P achieved new highs for 5th consecutive session following GDP. Tech mania continued with IBM surging 12% -the largest gains since 2001. Hong Kong has recouped about $400bn in the 3 day rally following China’s rescue package announcement.


Q4 US GDP was up 3.3% qoq, seasonally adjusted (saar), consensus was 2.0%. Consumption was up 2.8% qoq. Core PCE deflator was in line with consensus at 2.0% qoq saar. This supports the soft-landing narrative upon which Yellen is keen to opine. Deutsche notes that the 3yr and 5yr average core PCE are both comfortably above target and are expected to remain so for at least a year, so an AIT framework (Average Inflation Targeting) suggests the Fed should not consider easing policy this year. But recent Fedspeak, the SEP and market pricing suggest that the Fed is likely to initiate its rate cut cycle by mid-year.


As for quantitative environment, the Fed confirmed on Thursday that the Bank Term Funding Program (BTFP) will stop making new loans from March 11. The Fed also raised the rate on BTFP loans, effectively increasing the rate by 50bps so new BTFP loans are no lower than interest rates on reserve balances, removing an arbitrage opportunity. BTFP is an emergency lending program that was created in response to the SVB crisis in March last year.


US jobless claims higher. Initial claims up 25k to 214k, continuing claims up 27k, rebound comes after soft prints last week.


ECB kept rates on hold, in line with consensus. Bunds and Euribor futures jumped as Lagard did not push back against the market’s aggressive rate cut path.


USTs following as EGBs ripped higher with curve bull steepening. 2s10s jumped to weekly highs, above -18bps, helped by a block steepener trade in the futures pit of $700k per 1bp. The market stalled as it went into the $41bn 7yr UST auction. The auction saw adequate demand, tailing about 0.3bps with average non-dealer involvement and the market continued to push ahead. 2yrs closed at 4.31%.


Oil continues to push higher with CL gaining another 3.15% to $77.36 – trading above December highs with this week’s inventory data and continued Red Seas disruptions driving prices.


Japan’s US$ primary is dominated by high yield issuer Rakuten’s (BB) refinancing. They plan to issue $1bn 3yr bonds, the proceeds of which will go towards the tender (read buyback) of RAKUTN 10 ¼ 11/30/24 USJ64264AC82. The company has around $5bn of debt maturing by June 2025.


China New Issues yesterday included:

-Joy Treasure Assets Holdings Inc.: Issued 3Y 550M USD Senior Unsecured bond at IPT T+190bps area VS FPG T+155bps. Bond ratings are BBB/A-(S&P, Fitch). CICC is one of the JGCs. Guarantor is China Orient Asset Management

-Sichuan Nanchong Penglai Xingda Tourism Development Co., Ltd.: Issued 3Y CNY Senior Unsecured bond at FPG 4.8%. SBLC Provider is BANK OF TIANJIN.

-Rudong County Jinxin Transportation Engineering Construction Investment Co., Ltd.: Issued 3Y 50M USD Senior Unsecured bond at IPT 5.9% area VS FPG 5.5%. SBLC Provider is BANK OF JIANGSU/NANTONG.

-Shaoxing Shangyu State-owned Capital Investment and Operation Co., Ltd.: Issued 3Y 300M USD Senior Unsecured bond at IPT 6.05% area VS FPG 5.6%. Bond rating is BBB- (Fitch). CICC is one of the JGCs.


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