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Bond Market Insights - Wed, Mar 30 2022

Updated: Apr 6, 2022

Month end rebalancing took Asia IG spreads up to 4bp tighter yesterday. There was some real money selling of India corporate 10yr benchmarks, but the sector remains better bid with some 5yr paper difficult to source.

Asia sovereigns were lifted by buyers, particularly 25-30yr Indonesia. Philippines saw buying interest in off-the-runs rather than the recent issues.

China High Yield has had a big move up in the higher 'quality' property names over past 2 days, after the COGARD/ABC RMB 40bn news and the revelation that CIFI and Seazen are exploring USD bond offerings backed by Zheshang Bank standby letters of credit. Over the two sessions CIFIHG rallied as much as 15 points, having a 40 point range over the month, whereas COGARD was up 13 points, having had a 33 point range over the month.

SUNAC announced it will not release unaudited results by 31st march and they are still working on the repayment plan on the RMB 4bn "20 SUNAC 01".

Yuzhou Group proposed to fully repay the principal and interest of the domestic CNY 1.5bn "19 Yuzhou 02" by the end of April. In the international markets the US$ YUZHOU 8.5% 02/23 is still in default, the company having missed the last coupon payment. Caveat emptor. As Orwell said “All animals are equal, but some animals are more equal than others”

This year Government-backed real estate companies have raised CNY205bn (US$32.3bn) of local debt. The last quarterly record was set in 2020 at CNY84.7, this has been eclipsed by March's figure alone, Private sector property firm's bond sales have fallen 37% in the same time period. These SOE's join shadow banks and trusts, including MinMetals and Zhongrong Trust, who have already bought stakes in beleagured real estate projects this year.

US Treasuries close the session higher led by the belly of the curve. 10yrs close the NY session at 2.395% and the curve saw quite a move again with 2/10s inverting for the first time since 2019. 5/30’s traded from -6 back to flat over the session. Supply came via $47bln 7yr notes, which although having a 1.5bps tail, had pretty solid non-dealer demand. Month end and quarter end will dominate flows today (Wednesday) and it is fiscal year end for Japan. In anticipation of this, the last two sessions have seen sizeable selling of short end futures by Japanese names.

Japan government bonds have not been a subject for conversation for the longest time, but recent events are drawing attention. As 30yr bonds pushed through the 1% barrier yesterday, the first time since 2016, the government is becoming more determined to keep a handle of things and have announced they will buy unlimited amounts of 10yr JGB's to keep the yield at 0.25%. Traders are now watching the gap between FX-hedged 30yr US treasuries and JGB yields. If JGB yields continue to rise this could put more pressure on the long end of the US treasury market.

This morning China IG opened another 3bps tighter following good buying of 10-30yr SOE and TMT bonds in NYC. BBB- rated SINOCE was up 1-2pts catching up with rest of the space. Huarong Finance (BBB) ripped higher, +1.5pts in 5yrs, 2.5pts in 10yrs and 30yr was up 4pts. Other AMC's inched higher on low volume. China HY consolidated, being unchanged to -1 pt, distressed names traded a touch firmer with PWRLNG 1-2pts higher post results. Asia sovereigns saw buying of INDON and PHILIP, dominated by offshore players in the long-end as we head into month end.


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