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Bond Market Insights - Thurs, 11 Apr 2024

DJIA -1.1% / S&P -1.0% / CCMP -0.8% / US10YR US +18bps 4.54% / CRUDE +1.0% $86.3 / GOLD -0.8% $2,335 / VIX +5.5% $15.8.

A frenzied rates market on Wednesday as US Treasury yields surged following another ‘problematic’ CPI report and an ugly 10y auction.


Core CPI saw its fourth consecutive +0.4% m/m gain, topping the +0.3% estimates. Core services ex housing (super core) re-accelerated from 0.47%M to 0.65%M, amid continued uptick in medical and transportation services. 3-month annualized core CPI jumped from 4.2% to 4.5%, the fastest pace since May 2023. The data raised further concerns that the disinflation progress seen through 2H2023 has stalled.


Banks scrambled to readjust Fed calls with most giving up on June rate cut calls while reducing the total number of cuts through 2024.

Comments on policy/outlook from the FOMC minutes, reiterating that QT should slow ‘fairly soon’, were viewed as stale, thus ignored. Fed's Barkin spoke after the CPI print, maintaining that the Fed is making "a lot of progress" on inflation.

Former US Treasury Secretary Summers was more strident saying a June rate cut "would be a dangerous and egregious error", "you have to take seriously the possibility that the next rate move will be upwards rather than downwards".


The front-end led the way down with as USTs with CTA selling in futures, outright and on gamma hedging as support levels were penetrated. 10yrs were trading at session lows as the $39bn 10yr auction came in sight. Despite yields being above 4.50%, the 10y auction did not go well, tailing 3.1bps (4.56%) with the lowest non-dealer participation since Nov 2022. This decline continued.


2yr yields peaked at 4.98%, 5yrs touched 4.62% and 10yrs 4.56%. 30yrs got to 4.643% before consolidating. 5yrs underperformed, the 25bp move being the largest since March 2020. On the curve. 5s30s flattened 14.2bps to ~1bp.


What’s priced in? The market anticipates only 3bps for the June meeting. The first rate cut is now pushed back to November with around 40bps by year end.


Fitch kept China's sovereign credit rating unchanged but revised the outlook to "Negative" saying the government is likely to pile on debt as it seeks to pull the economy out of a real estate-driven slowdown.


HK equities had an interesting day. Jack Ma took to an internal Alibaba forum to voice his support for a company undergoing the restructuring, emerging from seclusion for the 2nd time in months. Tech names led by ATM. Alibaba and Meituan were both up 5%. More than 80% of listed car companies' March sales increased, and automobile stocks also rose sharply. Xpeng Motors soared 8% announced its official entry into the Hong Kong and Macau markets. On the flip side semiconductor stocks bucked the trend and fell, with leading stock SMIC falling nearly 2%.


China IG tightened another 1-2bps yesterday, China HY was marked up 1pt. Vanke was also marked up but fell as much as 4pts as S&P downgraded it to BB+, saying that while it has sufficient cash and access to liquidity sources to address debt maturities this year, weakening property sales and margins will undermine Vanke’s competitiveness. VNKRLE 3.975% 11/09/27 is currently trading around a big figure of 45, yielding around 30%.



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