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Bond Market Insights - Mon, 26 Sept 2022

Pakistan was busy on Friday, after the PM spoke of needing debt relief in the UNGA. Bonds corrected sharply lower 6-12pts. Subsequently the finance ministry clarified that they meant relief from bilateral lenders and not bondholders. There was buying of the front end on the back of that, up 2-3pts off the lows. The finance minister's resignation over the weekend put a bit of dampener on sentiment and bonds are opening 1 - 1.5pt on longer tenors. Sri Lanka bondholder call was underwhelming on Friday, in terms of not providing any new information. Bonds are unchanged today .after a flurry of buying.

CNY closed at the weaker end of its trading band against US$, a variance from mid not seen since 2015.As a result the PBOC brought back a tool to make it more expensive to bet against the yuan via onshore derivatives, imposing a risk reserve requirement of 20% on banks’ foreign-exchange forward sales to clients. The reserve ratio has been zero since 2020. The news has not had much effect so far today, perhaps due to it only starting on 28th. Also, PBOC lifted its morning fixing by 378pips allowing spot to move higher by a similar amount. It seems that PBOC does not want to spend actual reserves stemming the US$ global rally. CNY has continued to slide to 7.165 and due to PBOC’s current easing stance DB predicts that CNY will reach 7.4% by mid-2023.

Japan is another advocate of keeping rates low. As a result of BoJ’s policy core CPI in August printed a 31-year high, crushing the yen and forcing Japan intervened to support the currency.

Friday was the worst day for 5yr gilts since a +200bps hike in 1985. For Pound Sterling it was the 3rd worst day since Black Wednesday in 1992 and the 41st worst day in history over 160 years. But the current repricing could be a good thing for His Majesty’s Treasury, attracting foreign buyers at a time of record primary issuance. Obviously this won’t be such a good thing for other European rates. GBP has fallen further in Asian hours, collapsing to a low of 1.0350 at the beginning of the session, recovering to around 1.05. he markets will now be looking towards the Bank of England Governor Bailey speaking at some stage this morning, and making some calming comments at a minimum to help quell the 'sterling crisis' we have to hand

Today China HY outperformed IG in this stressed macro environment. Liquidity remained thin into month end. Property bonds were up or down 1pt depending on the name. Liquid high dollar priced bonds such as Country Garden and CIFI slid 0.5pt or so. Agile was up 1pt on short covering.

Macau gaming bonds were 3-8 pts higher on news of the relaxing of visa requirements. real money was the main buyer. In China industrials, Fosun rallied another 1pt as funds covered shorts.

A thought.. The tale of Carnival Group is a cautionary one for Hong Kong listed Companies who are incorporated overseas and whose business is primarily on the mainland, or more specifically their Directors who will now run the risk of personal liability if they cause their company to carry on trading while insolvent.

Carnival got into financial trouble and a winding up order was made in March 2020. Evidence showed that the company had substantial assets, but the Directors of the company saw fit to stand in the way of the order despite knowing that a restructuring was unviable. Consequently, Directors are now required to file and serve evidence on why they should not be liable to pay costs. The court appears to be going out of its way to underline that directors have a duty to consider whether there is any reasonable prospect of the company avoiding going into insolvent liquidation. Thanks to Hogan Lovells for the heads up. shows companies damiciled in Cayman. It includes Agile, CIFI, Evergrande, Sunac etc.


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