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Bond Market Insights - Thu, 19 Jan 2023

Asia credit opened today’s session a couple bps wider in general, but 2-way will probably help it pull back, given the current level of cash holdings out there. Longer dated TMT are tighter by 5bps while AMC’s are softer. Longer dated perps are also weak.

The rating agencies have been voicing opinions on China. According to S&P China's major banks have a CNY3.7tn shortfall in their TLAC requirement as widening property-sector support takes aim at balance sheets.

Fitch announced that LGFV (local government financing vehicles) loan restructurings may rise in China’s weaker regions, highlighting the latest restructure of Zunyi Road and Bridge Construction Group in the picturesque Guizhou Province in Southwest China. This included a 20yr bank loan maturity extension, interest rate reduction and no principal payment for the first 10 years, not so pretty.

In December the Central Economic Work Conference said that policymakers would act to prevent increases in local government debt risks and resolve the outstanding ones. Finance minister Liu Kun added emphasis by advocating a strict prohibition on linking LGFV borrowings with local government credit.

The onshore property sector saw China SCE and Agile Group bring CNY 3-year guaranteed bonds at 4.1% and 4.7% respectively. CIFI Holdings targets to issue RMB1.5 bn guaranteed bond after CNY. Recently Agile missed a US$ coupon payment of AGILE 5 ¾ 01/02/25, a coupon was also missed for PWRLNG 7 ⅛ 01/15/24.

Today’s macro calendar should not be as dramatic as yesterday’s BOJ news and weak data in the US, but there is still some solid supply to deal with, particularly in the short end of Europe. There is some minor US data and FedSpeak, as the government nears a potential blackout. UST technicals are overbought, but have shorts thrown in the towel?

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