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Bond Market Insights - Mon, 22 Jan 2023

US equities remained strong on Friday, S&P up 1.2% achieving new highs. US Treasury activity was muted. US existing home sales were down 1% m/m. Total sales for 2023 were at the lowest level since 1995.

Fedspeak was cautionary. Daly said it was too early to declare victory on inflation. Fed’s Goolsby said that if inflation reverses it could merit rate hikes. Deutsche Bank is plumbing for the first cut to be 50bps in June and a total of 175bps of cuts for 2024. Caveat emptor, analysts opinions are not cast in stone and are subject to rather rapid change.

The tone turned soft for China IG after HSI moved lower, breaking through 15,000. Real money and banks sold TMT names, filling street shorts, so not really denting prices. Property was not as resilient. Vanke Real Estate (VNKRLE) and Longfor Holdings (LNGFOR) were down 4-5 points. Ping An Real Estate (PINGRE) was down 1-2 points, with selling from onshore and offshore accounts. In high yield Gemdale onshore bonds tanked, pulling $ offshore bonds in their wake. GEMDAL 24 was as low as $51 (-7pt). There was not much volume at the lows. Industrial names were down -0.5 to 1.5pts. The rest of Asia traded reasonably well, with spreads about 2bps tighter.

In the US we have 2yr/5yr/7yr supply this week from the Treasury. IG Corporate supply expected to be less than last week by approximately $10bn may prove supportive near term. Quite an aggressive rejection of the lows on Friday (10s touch 4.20%) strengthens the case for buying dips. Still, a lot of data to come this week, tomorrow’s focus will be the BOJ rate announcement in our time-zone. Once New York arrives we just have the Leading Index today – expect it to be a quiet one.


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