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Bond Market Insights - Sun, 16 Oct 22

Last week the ineptitude of the UK leadership hit global markets and by the time the strong CPI number was printed sellers had run out of ammo, hence the rebound in the US on Thursday, which allowed a bit of a relief rally in Asia on Friday.

The IMF revised down global economic growth projections to 3.2% in 2022 and 2.7% in 2023 and, together with the World Bank, indicated concerns over a world recession next year.

China’s 20th National Party Congress kicks off today against a backdrop of US/China friction, with both the new semiconductor restrictions as well as the designation by the US DOD of thirteen new entities, including USD issuer ChemChina. as Chinese military companies roiling the Asia credit complex.

Ten entities with US$ bonds, either directly or through subsidiaries, are on the Office of Foreign Asset Control’s list, with 5 others being removed in 2021. The DOD has re- added two of those, Chemchina and China State Construction Group. Chemchina bonds widened 60-90bps after first being added in 2020

Asia credit widened all week, with Asia IG around 10bps wider and Asia HY wider by 60bps to US treasuries. Asia-ex IG CDS widened 20bps, back to covid level hights. The only benchmark new issue was from the indirectly state-owned entity Syngenta, which priced US$500m SYNGEN 5 04/19/26 at T3+80.

China's property sector remained weak. CIFI blamed cross border transfer issues due to the long China holidays for missing a HKD coupon on a convertible bond. China Huarong and Cinda are stepping into help the property crisis at the project level. Sunac turned to Huarong to help restructure the Dongjiadu project, while Shimao agreed to sell 45% of a mixed-use project to China Cinda. Some commentators forecast that around 25% of housing project construction could be halted through 2023, which could lead to calls for resolution from government to avoid a deep negative feedback loop for the economy.

GS points out that from 2012 to early 2021 China HY grew 900% in market value to USD 126bn, according to the ICE-BAML China HY index. The sharp falls in bond prices and the removal of defaulted bonds from the index has pushed that market value to US$30.6bn, a fall of 75% over 18 months.

Adani was making headlines. Adani Group is in talks with investors, including Singapore’s GIC and Temasek, to raise $10bn to fund the expansion into clean energy and ports. Adani Transmission completed a corporate restructuring which inserted Adani Step One Ltd (ATSOL) as the issuer of its existing US$ notes, Adani Transmission remains the guarantor. S&P’s BBB- rating on the notes was withdrawn, although Moody’s and Fitch’s were retained.


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