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Bond Market Insights - Tues, 28 Mar 2023

Updated: Mar 29, 2023

The front-end of US Treasuries slipped through 4% again after a weak 2yr auction; the auction tailed by nearly 3bps to 3.954%, with non-dealer participation falling to 77.0%, the lowest since October. That is +47bps from Friday’s low. 2s10s flattened to session lows near -50.0bps as the front end unwound some of the aggressive expectations of rate cuts. Terminal rates for May climbed back above 4.95% which indicates roughly a 50% chance of one more 25bps rate hike at the next meeting. But the market is still pricing in 75bps of CUTs from June through to December.

Fed's Barr will rather avoid the real issue in a pre-released statement that he will present to the senate later. He’ll say that "SVB was not subject to the liquidity coverage ratio or the net stable funding ratio"; Fed is "assessing whether SVB would have had higher levels of capital and liquidity under those standards, and whether (this) would have forestalled the bank's failure." Perhaps a more glaring criticism would have been that the banks stress tests were focused on recessions and declining inflation and did not even consider what would happen as the Fed itself rapidly raised rates in the face of rising inflation.

Over the past four weeks as rates volatility has ballooned and the banking sector has proved fragile, a net US$ 342bn has flowed into global money market funds, the biggest on record except for the period around mid-March to mid-April in 2020 when the pandemic first broke.

The US primary market printed almost $10bn, bringing the month’s tally to $85bn. Secondary was 4-10 bps tighter as banking stocks recovered on the back of First Citizens Bancshares agreeing to buy large parts of SVB assets/liabilities.

This morning as Asia IG secondary tightened marginally, the primary market leaped into action with senior unsecured issues for AIA group (10yr +180 area) and Bank Mandiri (T3+225 area). Hyundai Capital America is expected to price a 4-tranche deal in NY time: 3yr, 5yr and 7yr fixed coupon and a 3yr FRN. This follows the $1bn two tranche issue for Korea National Oil priced yesterday and the mandate for Korea Mine Rehabilitation, who are looking at a 5yr 1mo deal.


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