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Bond Market Insights - Thurs, 16 Nov 2023

The CPI induced rally in UST’s was stopped in its tracks by retail sales. Retail sales fell in Oct fell less than expected, down -0.1% vs -0.3% est. The previous month was revised higher to +0.9% (from +0.7%). 10yr yields peaked at 4.55%, +13bps from the rally’s lows. 2yrs did not breach 50bps through Fed Funds and have now faded to -42.5bps.

Today we have US Jobless Claims and Philly Fed, ahead of Friday's PPI. A dip in Industrial output is expected, while weekly claims have been trending at low levels indicating a buoyant labour market. We also have a wave of CBSpeak from the ECB and Fed.

US IG continued to show strength, tighter by 2-3bps, and easily absorbed the swathe of new issues. There were 7 deals totaling $13.3bln, $7.5bn being M&A-related. The weekly total stands at around 18bln. Toyota Motor Credit (A1/A+/A+) issued a 2-tranche deal, $900mm 3yr at T+75 and $1.1bn 7yr at T+105.

Barclays priced a $1.75bn AT1 Perp new issue at 9.625%, 87.5bps tighter than IPT with a $22bn order book. This follows on the back of the UBS 9.25% dual tranche perp success. UBS 9.25% PerpNC10 is now trading with a 104 handle. It seems that the Credit Suisse fiasco is already a distant memory.

In Asia Huarong (HRINTH) has hit the headlines as it takes a 5% stake in CITIC Ltd. China Huarong Asset Management returned almost $2bn to CITIC Group that had been injected in the bailout in two years ago. HRINTH curve has settled around 2-4pt higher with the 27s outperforming at +4pts this morning.

Wynn Resorts Ltd (WYNMAC) was upgraded to BB- by S&P. Although positive it has not had a large impact on prices. S&P uses top-down approach and looks at the parent company. MGM China Holdings (MGMCHI) contributes between 20%-25% of EBITDA to the parent while WYNMAC contributes nearer to 70%. MPEL, which was already BB-, was already trading wider than WYNMAC before the re-rating.

Fitch has been taking a look at the Chinese local government scene, which they coin LRG. 26 provinces have issued, or announced plans to issue, refinancing bonds mainly to repay “hidden” debt. The amount already exceeds CNY1tn.


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