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Bond Market Insights - Thurs, 01 Dec 2022

It was all eyes on the US on Wednesday as markets waited for Powell, who struck a more dovish tone than the market expected. It seems that Federal Reserve Chair is prone to swing with sentiment. He said that the Fed could slow the pace of rate hikes as soon as next month, although he did admit that there is still a long way to go to restore price stability.


Data showed that demand for labour and the pace of hiring is cooling, confirmation will be sought in non-farm on Friday. Expectations are running at +200k.


10yr treasuries rallied up almost 1pt to yield 3.63%. STIR futures were led by the reds (Dec 23-Sept 24) which traded down -9.5 from Tuesday’s close in the morning, following the GDP and JOLT figures, before squeezing to +15.25 into the pit close. 1y1y OIS saw a 25bps intra-day reversal, approaching the post-CPI lows at around 3.91%.


The market is pricing in 50bps hike in December, with a very slim chance of 75bps. February is predicting to add another 25bps or 50bps to a December 50bps hike (total being 75bp to 100bps). March is pricing in a total cumulative hike of 105bps, while May, June, July, September all show a cumulative hike of 100bps. November 2023 implies a total hike of only 80bps, so pricing in an ease after the peak.


Personal Consumption Expenditure is tonight and is a key Fed data point, so given the current thin markets we could see more volatility if this defies expectations.


In Asia yesterday there was strong short covering in TMT high beta names like Lenovo and Weibo, while fast money chased Meituan, propelling the curve 2pts higher. BABA and TENCNT tightened around 7bps. HY property consolidated, Country Garden slipping 2-4pts while the likes of Shui On and Gemdale hovered around unchanged. SOE perps and AT1’s continue to e well supported.


EM Sovereigns tightened with real money selling and ETF’s and locals buying. Frontiers performed well. Sri Lanka was boosted by passive accounts, rising 1pt. Pakistan saw real money covering underweight positions after the recent IMF headlines, up 2pts. The street seems to be flat of Mongolia and buyers continue to patrol the market for stock.


Today Asia opened firm. China IG laggards tightened 15bps, while tighter bonds like BABA 31 was unchanged. Meituan continued its push and is now 6pts higher on the week. There was a rush cover shorts in the AMC space which moved 3-4pts higher. High Yield is a couple of points higher. Macau Gaming has had a stellar week so far, up between 5pts and 12pts after the concession announcements.

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