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Bond Market Insights - Mon, 03 Jul 2023

US markets were stronger after US core PCE deflator was reported up 0.3% m/m in May, with y/y a little softer at 4.6% vs consensus at 4.7%. Core services ex shelter were the softest since last July, but Fed might want to see some more progress here. US personal income was up more or less in line, up 0.4% m/m in May. Spending was up a disappointing 0.1%m/m with a downward revision to the month before.

Fedspeak from Goolsbee was back to the old commentary. He hasn't “made up my mind" on the July meeting. Goods inflation "hasn't come down as fast as expected."

This morning Japan's Tankan came slightly stronger than expected and JPY is now close to breaking through 145. Will Japanese accounts look to sell US$ denominated bonds on a break?

Asia IG credit is opened a little tighter after a strong US session. There has been better buying, particularly in the BBB and perp space in SEA and selling in China BBB. It was hoped that there would be buyers this morning at the start Q3, but early on sellers of China TMT emerged, which took a bit of the froth off. Tier 2 bonds continued heavy and the Thai sector widened another couple of bps. Singapore Tier 2 was stable, having widened as much as 15bps over the last week.

Primary issuance for Asia ex-Japan G3 bonds was robust last week, totaling USD 2.6bn, twice that of the week before. Performance was mixed, the new 5yr KORGAS a couple of bps better from the T+88 while Nonghyup Bank (NACF) 5yr ended 3bps wider from the T+98 reoffer. In secondary demand remains firm out to 7yrs for Korean names.

Expectations were perhaps a bit too high for Macau Gaming in June and were disappointed by the highest daily gaming monthly revenue this year. However, 2Q23 earnings will continue to improve with gaming revenue 30% higher QoQ as we approach the seasonally stronger summer months which is keeping bonds well bid.

Resort World, RWLVCA was upgraded by S&P from BB to BB+ "The rating action reflects a reduction in the proportion of senior secured credit facilities in the company's capital structure. This follows an equity contribution of US$145 million and a subordinated shareholder loan of US$300 million to partially repay existing senior secured credit facilities.”

Sri Lanka has had quite a rally, with the curve trading up 3-4pts in NY on Thursday and maintaining the bid through to the end of the week, with fast buyers jumping on the positive news flow. Today prices have slipped a tad, but remain elevated.

Three options are being considered for the resolution. The first is a reduction of 30% of the principal amount, with repayment set over a six-year period at an interest rate of 4%. There are two options on the table for domestic holders. They might get to keep principal amount, but repayment will occur over 15 years, with the first 9yrs giving an interest rate of 1.5%. or perhaps they can exchange to local currency (LKR) with a maturity of 10yrs at the Sri Lanka Standing Lending Facility Rate +100bps



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