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Bond Market Insights - Thurs, 07 Jun 2023

A bit of a wobble in the markets yesterday, with VIX regaining a 14 handle, UST’s and equities slipping and US IG widening. The FOMC minutes showed that nearly all on the committee expect more rate hikes. There was a mixed tone from Fed’s Williams: Housing market "not suggesting rampant inflation", "seeing signs" that shelter inflation is improving, but also: "not content" with where inflation is, "still have work to do" on rates. In Europe ECB's Visco set a dovish tone, saying that "due caution" needed in raising rates, "more hikes not the only way" to curb inflation. Today Nagel will be putting in his tuppenceworth.

New issuance is expected to be light this week, but three companies issued $5.75bln in the primary market. Japanese names have been active. Nomura (Baa1/BBB+) issued $900mm 5yr at T+183 vs IPT of +210, and $600mm 10yr at T+215, vs IPT +240. American Honda Finance (A3/A-) issued $950mm 3yr at T+70, vs IPT +90, and $800mm 5yr at t+90, vs +110. Today Sumitomo Mitsui Financial Group announced the intention to launch a multi tranche deal of senior and subordinated debt ranging from 3yr to 20yr. It could price as early as this evening in New York. DB's desk analysts see this new deal coming with a 5-15bp new issue concession (NIC) to the secondary market and also see SMFG credit as being cheap compared to its peers, so this could be a good chance to get involved (caveat emptor). Toyota is also in the market with a three-tranche deal in the format of SEC registered, senior unsecured, “woven planet” sustainability bonds.

According to their website the “Woven” of Woven Planet stems from the founding spirit that Sakichi Toyoda, Toyota Group’s founder, had of “wanting to make his mother’s work easier” when he invented the Toyoda Automatic Loom that led to the establishment of Toyota. The drive to serve others and make their work easier — was a core value of Toyota carried on to today. “Woven Planet” initiatives represent the Company’s determination to move step by step toward the future in this Toyota’s founding spirit and the SDGs spirit of “leaving no one behind.”” This must have been the initiative behind the cup holders in my first Toyota Celica, an innovation that was a real plus for me.

China property was weak yesterday after another halt in trading of Sino-Ocean RMB bonds and as an auction of a Shimao land portfolio attracted zero bids, despite being priced at 20% below current appraisals. The rest of Asia IG was stable.

In May he PBOC told banks only to buy bonds sold in the Shanghai Free Trade Zone if issueers have genuine business operations in the area. This has essentially blocked another funding avenue for the beleaguered Local Government Funding Vehicles, which have found themselves all but excluded from the international markets already. There has not been a single FTZ bond issued since June 16th and a shift to long term loans to LGFV’s by some banks has been observed, but will this alternative be enough.

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