Bond Market Insights - Mon, 21 Nov 2022

Last week’s lower CPI and PPI prints and lower unemployment claims data put a fire under most markets which hawkish Fedspeak couldn’t extinguish. China gave a similar boost by recalibrating covid-zero rules and announcing measures to shore up the ailing property sector. The Xi / Biden Bali meetings also helped, signalling some level of US-China rapprochement

The US$ primary markets saw USD23.3bn priced in global ex-SSA IG. APAC USD primary picked up as China and Australia financials joined the usual stream of small LGFV deals, totalling USD5.2bn. There was also US$1.2bn of Middle East financials to tempt cash out of the vaults.


In Asia TMT names like Tencent, JD, Meituan, WB and Lenovo tightened 70-100bps in the 10yr paper. SOEs like Haohua 10yr tightened 120bps, and in the AMC sector5 Huarong and Great Wall 5yr rose 6-8pts, Orieas and Cinda were slightly muted, rising 4pts while developers like Longfor and Vanke saw their 5yr notes surge another 10pts.


Country Garden announced share placement of 1.46bn shares at HKD2.68 each, netting approximately HKD3.92bn which will be used to repay debt. Agile also followed with a 295m share placement at HKD2.68 each. Stock prices dropped for both companies following the announcement. Vanke signed a strategic cooperative agreement with six Shenzhen SOEs on Nov 16, including Shenzhen Metro.


China’s banking regulator approved the transfer of a 3% stake in China Huarong AM from the MOF to state-owned Citic Group, long expected by the market. Citic will become the largest shareholder followed by MOF


China IG had some respite on Friday. Demand continued for front end China leasing and T2 subordinated bonds. There is also growing demand for floating rate notes. The main focus for Local Government Financing Vehicles was ticker GZINFU, Vertex Capita out of Guangzhou, which slumped 13pt over legal action against a subsidiary's non-payment of a credit facility, but then rallied back to only a 4pt fall as the company tried to calm investors.


Markets ended last week on a mixed note, as U.S. existing homes sales dropped for the 9th month, by 5.9% m/m in October after a 1.5% m/m decline in September. The Conference Board Leading Index of Economic Indicators was down 0.8% in October, expected 0.4%.


After the FOMC minutes are released on Wednesday the US heads out for Thanksgiving, which will lead to thin markets. Any change in the dot plots and the ensuing Fedspeak will be closely monitored. Markets are priced for a downshift to a 50bps rise in December.


Closer to home RBNZ is expected to raise the official cash rate by another 50bps on Tuesday. The Bank of Korea is more sensitive to the weakness in the China economy and the market now expects a hike of only 25bps in the 7-day repo to 3.25%. PBOC left the medium term lending facility rate unchanged at 2.75% and is expected to leave prime rates unchanged this week.


This morning the market is stable as flows remain constructive thanks to continued PB buying for the higher yielding spots perps and SEA Tier 2s. China non-core names have been picking up in terms of volume and interest is reaching further down the credit curve. Real money continues to address and reduce underweight positions in China.


Following the Malaysia elections over the weekend, which resulted in a hung parliament. The deadline for selecting a new PM is 2pm today. There’s not much follow-through so far this morning following the recent widening.