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Bond Market Insights - Thurs 29 Sept 2023

USTs were hit into the auctions and were at session lows for the US$49bn 5yr’s, which attracted solid demand, The auction stopped about 1.1bps through at 4.659% (highest since July 2007). Non-dealers were in-line with recent average, taking 88.7% of the auction, which was seen as a vote of confidence, but the ensuing bounce was met with solid selling and the market slump resumed, making new lows. The afternoon session saw renewed pressure on the front-end as (old) 2yr yields took out last week’s post-FOMC highs, climbing above 5.20%. Convexity mortgage related sellers kept constant pressure on the market, which could mean higher yields into the end of the week.

Kashkari was busy, making three separate media appearance (CNN, CNBC, FoxBiz) through the day, indicating that the Fed may need more than one additional rate hike. Futures are pricing in higher for longer with Sept 2024 OIS climbing back above 5% and Dec hitting 4.75% in the afternoon with less than 75bps of rate cuts now priced into next year.

In the primary markets Glencore (GLENLN), not quite an Asian issue, but we’ll take it, printed USD2.5bn three tranche deal 5yr@T+155, 7yr@T+180, 10yr@T+195, around 25bps tighter that initial price talk. These levels are 15-20bps wider than existing secondary deals. Mitsui & Co. (MITSCO) is marketing a benchmark Reg S 5yr USD deal, expected to be rated A3/A (M/S). Fair value could be seen midway between Mitsubishi Corp the largest and highest rated Japanese trading company and lower rated Sumitomo Corporation which would be around T5+90, but with some new issue concession and US investors being excluded due to the REGS format launch spread will probably be around 5+100.


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