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Bond Market Insights - Mon, 25 Sept 2023

USTs opened lower in Asia on Friday with 10y yields topping 4.50% before a modest recovery to end the week with the belly leading the move higher.

Comments by Fed Gov Bowman and Collins hit the curve. The plural in 'Further rate hikes will likely be needed' was noted by the market. Collins noted that the current policy phase requires "considerable patience", rates "may have to stay higher for longer". 2s10s flattened to -69bps by the close.

US Treasury supply will be a focus this week with $134bn in 2’s, 5’s and 7yr. Jefferies “Greed & Fear” argues that the market has broadly been immune to meganumerophobia, a rather novel but apt term as debt has ballooned from billions to trillions. However foreign investors have started to show signs of this fear as many buyers of Treasuries are now dealing with deteriorating fiscal pictures. So long as large, domestic money managers have a strong appetite for Treasuries, the market will be okay. This becomes a bigger risk as these auction sizes climb.

Global inflation indicators will also feature. US PCE deflator for August, September flash CPIs in Europe, Tokyo CPI for September, & Australia's CPI indicator for August. There’s quite a data dump out of US with regional Fed surveys, July house price indices, Aug new home sales, Sept consumer confidence, and revised Q2 GDP. Fed speak focus will be on Powell on Thursday, with added noise from Goolsbee, Cook, Barking, and Williams.

Odds of a government shutdown continue to climb as Republicans struggle to corral votes to bring a bill to the floor; McCarthy is now proposing stripping any Ukraine funding into a separate vote

Mayoshi Son is at it again. Following the ARM IPO, Softbank is considering a $800mm equiv. hybrid equity issue. Denominated in JPY and carrying a dividend estimated at 2% to 4% it is aimed at the retail investor, who achieve tax exemption thorough the Nippon Individual Savings account programme. The annual dividend rate of the class shares will fluctuate after the fifth year, and SoftBank has the right to repurchase them at an amount equal to the issue price. The funds raised will be used for growth investments related to telecommunications and information technologies, as well as next-generation social infrastructure. Softbank is anything but dull.

The Evergrande story, also not dull but more of a Russian tale. Recent developments include the scrapping key creditor meetings at the last minute, saying it must revisit its restructuring plan, detention of money management unit staff and an inability to meet regulator qualifications to issue new bonds. The plan is to restructure $30bn of offshore debt, swapping defaulted notes for new securities. It is grappling with total liabilities of around CNY 2.39tn yuan, US$327 bn) and is approaching a HK court hearing on Oct. 30 regarding a winding-up petition, which could potentially force it into liquidation.

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