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Bond Market Insights - Fri, Apr 8 2022

St Louis Fed President Bullard is the hawkish outlier at present. His comments overnight led to further declines in US treasuries, as he advocated a higher terminal rate than other officials. 2s10s ended around 17bp, a 4th consecutive steepening day. UST auction sizes were announced as $46bn 3yrs, $34bn 10yrs, and 20b 30yrs.

In March Japanese Life Insurance Co’s have sold the most foreign debt since September 2020, mostly US Treasuries as US$ rallied from 116 to 123 against JPY, will they continue to sell at these lower levels?.

Asia credit was relatively quiet yesterday as attention turned to the new issue market. As is often the case the build up of new issues was initiated by a $1bn deal from State Grid last week. Yesterday’s issues included a $3bn three tranche offering from Freeport Indonesia (Baa3), a $500mm perp from Power Construction Corporation of China, aka DianJian Haiyu, (Baa2), $300mm each from Ganzhou Development Investment (Baa2) and Yangzhou Economic and Technological Development Zone (BB+) and $200mm from Xi’An Municipal Infrastructure Construction (BBB+).

The rating agencies are out again with S&P telling us that China's property downcycle is not over. Moody’s downgraded Redsun a notch to Caa1, with a negative outlook and did the same for Times China from B2 to B3. On a more positive note the outlook for aluminium company China Hongqiao was revised to positive by S&P amid a deleveraging trend and favorable industry conditions, the BB- rating was affirmed.

Developers are facing mounting pressure on cashflow due to declining sales, tight regulations on property presales proceeds and a lack of interest in M&A by state-owned enterprises. It is estimated that a total of CNY 1.1 trillion ($172bn) of bonds and asset-backed securities will mature in 2022, with lower ratings and an inability to refinance we have a long way to go.

It has been reported that Evergrande onshore creditors will be allowed to file lawsuits at local courts in China; let’s see how that works out.

Today China Property is consolidating with B and BB names stable, while crossover credits are a little lower as fund managers look to reset shorts at these elevated levels. IG continues to be squeezed, as evidenced by Sino-Ocean Land which Moody’s recently affirmed the rating at Baa3 and dropped the outlook to negative. Bonds were trading in the 50’s 3 weeks ago and have now squeezed to the higher 70’s.

There was some two way flow in Sri Lanka today with prices in the low 40s/high 30s,. Hedge Funds were buying and real money selling. In Pakistan the supreme court ruling that the adjournment of the no confidence motion is unconstitutional and that Khan could face the possibility of an opposition coalition as an interim government is being viewed as negative. Bonds opened 0.5-1pt lower.


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