Bond Market Insights - Mon, 5 Sep 22

On Friday China financials were getting squeezed, senior short dates trading at the tightest for the year. Some T2 and leasing names came out but they were easily absorbed. AMC’s were quiet although Great Wall AM was heavy after Moody’s downgraded it from A3 to Baa1, reflecting Great Wall AMC’s weakened profitability, capital position and asset quality due to its large net losses incurred in 2021, as well as the opacity and complexity of the company’s business. The State-owned corporate sector saw buyers venturing longer, to the 10 and 30yr..


China HY property was weak. Country Garden, CIFI and Seazan were down 3-4pts in on selling by real money and fund managers after a two week strong rally. KWG rallied as much as 7pts after news of the exchange offer was announced, before retreating. Macau gaming continued its slide, 0.5-1pts lower on the day. There was some bottom fishing for Sands China.


In New York markets initially recovered on US unemployment figures. A higher participation rate was seen as a potential sign of easing inflationary pressures in the US labour market. Gazprom ruined the party, saying is not planning to restart Nord Stream 1.


UST 2s10s steepened on Friday and should continue to do so, especially as next week should bring a flood of corporate new issuance.


Participants expect the offshore China market to continue to consolidate due to domestic growth pressures and overseas volatility. The US-China audit deal will likely serve as downside protection in the near term, until more concrete progress is made.


China’s August manufacturing PMI released on Wednesday indicated sequential improvement in China's economy, but it failed to generate much optimism as China confronts new uncertainties, including a flare-up in US-China trade tensions, continued weakness in the property sector, and another surge in COVID-19 cases and lockdowns. 51 cities, making up 27% of national GDP, reported new infections last week.


China Securities Regulatory Commission Vice Chairman Fang Xinghai announced plans to further integrate HK and mainland financial markets. These include:

· expanding the pool of Stock Connect-eligible securities and pushing for the inclusion of HK-listed overseas companies

· supporting the introduction of CNY equity trading desks for Stock Connect

· exploring introduction of Chinese government bond futures in Hong Kong.


A July 28 meeting of the Politburo, the country's highest policymaking body, called for action to "stabilize the real estate market" and the use of "city-specific policies." It also told local governments they would be responsible for ensuring the "timely delivery" of homes under construction that have already been paid for.