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Writer's picturePhilip Chew

Bond Market Insights - Thurs, 25 Jan 2024

DJIA -0.3% / S&P +0.1% / CCMP +0.4% / CRUDE +1.3% $75.37 / GOLD -0.8% $2,013 / VIX +4.5%, 13


S&P further extends record high as Netflix continues to rally, up +11%. TSLA -0.6% as earnings miss estimates, warns growth may be notably lower.. Announced after market close, China will reduce the RRR for banks by 50bps in early February, adding CNY 1trn (US$139 billion) in liquidity.


PMI Day – US Manufacturing up 2.4pts to 50.3 in January, consensus looked for a small fall, the highest since Oct 2022. Services up 1.5pts to 52.9, consensus looked for a 0.1pt gain. Fits with the substantial easing in US financial conditions in recent months. Mixed European PMIs. Manufacturing beat, up 2.2pts to 46.6 in January, consensus looked for a 0.3pt gain. Services down 0.4pts, consensus looked for a 0.2pt gain.


After an initial bid, USTs were hit sharply lower, trading through Tuesday’s lows following the stronger PMI data and a weak 5yr auction, which tailed about 2bps amid the lowest bid/cover and the lowest non-dealers participation since Sept 2022.


On Monday, Brazil's National Treasury achieved a significant milestone by raising $4.5 billion in an overseas bond offering, marking the country's largest sovereign operation in the international market since 2005. Demand for the new issue exceeded $12 billion, prompting Brazilian companies such as Cosan, 3R Petroleum, and Ambipar to embark on investor meetings.  


The Central Bank of Sri Lanka (CBSL) kept its key interest rates steady, the Standing Lending Facility Rate at 10.00% and the Standing Deposit Facility Rate at 9.00%. The CBSL has cut rates by 650 bps since June 23 and expectations are that there will be cuts of 100 bps in Q2. Governor Weerasinghe noted progress in debt restructuring negotiations with creditors and hopes for preliminary agreements by June 24.


Yesterday was a very busy for Asia IG, helped by the solid performance of Asian stock markets. High-beta continues to compress with BBB/crossover names 5-7bps tighter on real money buying. Hard to fight the flows at the moment. Korean new issues all tightened about 5bps, SK Hynix and Mirae Asset being particularly active. China IG opening another 2bps tighter today.


A couple of China names are hoping to take advantage of this appetite. China Orient AM (BBB/A-) is touting a 3yr via its guaranteed funding vehicle Joy Treasures Asset Holdings. Initial price talk T+190. Shaoxing Shangyu, a BBB- rated local government funding vehicle, is also looking at the 3yr and will launch a sustainable bond, advised by CICC and Bocom International. They are talking of a 6.05% coupon.


We have a bit of a data dump today, with US GDP, Personal Consumption, Core PCE, Initial Jobless Claims, Wholesale Inventories and New Home Sales. The ECB is expected to leave rates unchanged at its meeting, then Lagarde will speak. Inflation has fallen from a peak of 10.6% in late 2022 to 2.9% last month. The target remains 2%.

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