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Bond Market Insights - Thurs, 09 Feb 2023

Asia credit has been under scrutiny for a while now. 2022 was the year of China Property, 2023 the attention has switched to India, following the fortunes of the Adani saga. Yesterday Adani felt strong on the back of decent results and rallying group equities. Bonds bounced around 1pt, which gave a bit of relief to India HY and IG alike. China HY property was a bit more positive than in recent sessions, with Country Garden and the usual suspects bouncing half a point.

According to FT Adani Group pre-paid the $1.1bn share-backed loan due Sept 24 last week having faced a $500mm margin call. Lenders included Barclays, Citi and DB. The loan was part of the $4.5bn Adani borrowed to finance the purchase of Holcim Ltd. MSCI says it triggered free float review of Adani Group securities.

During all this uncertainty JP Morgan has confirmed that Adani Group is still eligible for the indices they produce, including JP Morgan Credit Asia Credit Index (JACI), which tracks the total return performance of the Asia fixed rate dollar bond market. The JACI is closely watched, and its constituent parts can be adjusted to maintain its relevance to investors. In May 2016 it was deemed that China credits were too much a part of the index, so the weighting was reduced from 40.2% to 20.5%. There is currently talk of further tinkering.

Overnight US treasuries closed higher, led by the 10yr note and the $35bn auction that came 3bps through the market despite the continuing FedSpeak. End user participation was at record levels, dealers only bought 5% of the new issue.

Asia CDS levels have opened this morning a couple wider. The new KDB 5yr and 10yr two tranche deal is trading heavily, with many commenting on how tight it was launched. Both are currently offered 2bps wider than launch spread to UST, at 62 and 82 respectively. The lack of new issuance and the current focus on the next direction on rates is capping volumes in Asia credit.

Adani equities opened down around 5%. The IG bonds are lounging at T+500-450. they were wider last November, when they traded around T+650-700 when rumours of similar problems were circulating.

Yesterday’s 3- tranche PIF deal performed well, particularly the 7yr tranche which opened in secondary +1pt on domestic demand. The longer dated issues traded around reoffer. There is a lot of cash being put to work out there. Sukuk are extremely well bid and today’s DIB long 5yr senior will find a good audience. The new EIBUH dirham sukuk 3yr saw huge demand due to the rare name.


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