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Bond Market Insights - Thurs, Apr 7 2022

Further negativity swept through risk markets overnight as more sanctions were announced against Russia and equities digested the growing reality that the Fed is completely focused on tackling inflation. Meanwhile, the inflation backdrop in Europe is also getting much worse as PPI inflation makes new records

The market took the FOMC minutes in its stride. The Fed signaled it'll shrink its bond holdings by as much as $95 billion a month ($60b in UST + $35b in MBS) which was inline with market expectations, and nearly double the peak rate of $50 billion a month the last time the Fed trimmed its balance sheet from 2017 to 2019. Fed speakers Harker and Barkin conveyed more or less the same narrative, expressing their concerns over inflation and the potential of more than one 50bp hike.

Asia IG credit opened flat to 2 bps wider following further selling of high beta bonds in New York, such as Alibaba, Tencent, Xiaomi and CNOOC. Demand for the front-end is evidenced by the performance of the new CHGRID 25s which has tightened 30bps from launch. Perpetuals have been outperforming the broader market despite the move in rates, led by retail demand.

The China property space consolidated this morning. Single B and distressed continued to push upwards with the likes of KWG Properties, Guangzhou R+F and Scenery Journey gaining 2pts to 5pts while BB and crossover credits, such as Country Garden and CIFI Holdings were down 1pt, adding to the 2pt decline in CIFI US$ bonds yesterday, which were hit after an offer was made to purchase their dim sum bond. Funds and private banks continue to be the main players, while real money and Chinese accounts remain sidelined.

In Singapore the slew of new issues continues to drive activity in SGD credits. Despite the larger than expected deal for CLI Treasury (Capital Land Investment) the CLIVSG 3.33% 27 held onto the reoffer level on retail demand. There was also decent two-way interest for the new LREIT and SPOST perps.

Tonight brings US initial jobless claims, which should be a non-event, and more FedSpeak with Bullard leading the charge.


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