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Bond Market Insights - Thurs, 16 Feb 2023

US retail sales. Headline up 3% mom in January, consensus at 2%mom, core up 2.6%mom, consensus at +0.9%mom, and with upward revisions to the Dec 22. Seasonal issues might be at play here, but another reason to disregard the apparent softness in global December data

Feb Empire manufacturing showed a larger rebound than expected, up 27.1pts to -5.8. but price data was also stronger. NAHB housing market index was up 7pts in February, although still at a rather low level of 42. Industrial production was still weak though, being flat in January, vs an expectation of +0.5% mom.

The Congressional Budget Office (CBO) has released projections stating that the US is set to add $19 trillion to its national debt over the next ten years, $3tn more than previously forecast. This is due to rate hikes, veterans’ healthcare, retiree benefits, and the military.

The report also predicts a $1.4 trillion gap in the country's budget this year alone. Over the next decade, deficits are expected to average $2 trillion annually, with tax receipts unable to keep pace with rising costs. It suggests that a crisis could occur as soon as July if the debt limit is not raised, which could result in a recession.

Today we have US Philly Fed survey for February and January jobless claims, housing starts and producer prices. Mester, Cook and Bullard provide the Fedspeak

In Europe Lagarde reaffirmed a 50bp hike in March, today we have a few more ECB members speaking: Panetta, Nagel and Lane

Yesterday in Asia China HY property remained soft, with some of the benchmarks down 2.5 points on real money selling. Central China Real Estate (CENCHI) was under pressure as it has yet to pay the coupon for CENCHI 7.5 7/14/25, which was due last month. It also has bonds maturing in April, August and November this year, which is quite a wall to climb. Henan Province owns 29% of Central China, so they might be tested on this. According to Debtwire the outstanding coupon has now been paid.

New World Development bonds were slid another 3pts yesterday, with real money still lightening up following Monday’s news that the HK government had added security law requirements to land auctions. A buyer can be disqualified if they or their parent firms engage in activities that endanger national security or affect public order, according to official tender documents.

The move underscores the risks for the tycoons who control Hong Kong’s biggest developers. The extra scrutiny comes as property firms grapple with slumping home prices, which tumbled 16% last year. Land premium and stamp duties account for almost a third of the government’s total annual income.

On the positive side there was some respite for Tsingua Unigroup , TSINGH, which saw good buying on news that the groups chip design unit is seeking $1.5bn in new funding. China IG was soft, with the tech sector, HAOHUA and Huarong Finance weighing on the market.

Today Asia credit has had a positive opening, particularly India 10yr SOE paper which has been in demand. Buyers have the upper hand for Adani presently. The group is holding fixed income meetings today.

Early on new issuance out of Australia seemed to weigh slightly on US treasuries, a AUD 1.25bn deal for Australian Capital Territory, AUSCAP. but weaker Aussie Jan employment fell 11,495 m/m vs expectations of +20,000 causing a bounce. In USD MUFG priced 5 $deals, 3y/6y/8y/11y/FRN which mostly priced at 30bp in from IPT, pricing flat to secondary curves.


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