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Bond Market Insights - Tues, 08 Aug 2023

The UST curve saw renewed steepening after the short end recovered from an initial sell off on the back of Fed’s Bowman’s comments that further rate increases are likely needed as inflation remains elevated. Fed's Williams is a little less strident, expecting they’ll "need to keep a restrictive stance for some time" and that the need for more rate hikes is "an open question".

The latest Manheim Used Vehicle Value Index (MUVVI) fell 1.6% in July m/m, down 11.6% from a year ago. The long end continued to be heavy, making space for this week’s refunding which is +$7bn larger than May.

Corporate supply was heavy ahead of Thursday’s CPI with 9 deals in 16 tranches totaling $14.5bn. The AsiaPac representative was ANZ New Zealand Int’l Ltd (ANZNZ) A1/AA-/A+, $1bn 5yr fixed at T+120bps, original price talk (IPT) having been at +150.

The recent economic data hints that the U.S. is heading for a softer than expected landing with many economists lowering their expectations for a recession. Deutsche Bank thinks that the Fed is likely to begin to cut rates in the first half of 2024 and significant rate reductions could follow over the remainder of the year.

Asia IG has had good flows over the last few sessions with Japan lifers picking up long dated papers and Taiwan and HK banks being better buyer of the 5yr and 10yr. Private banks have focused on 20yr corporates as clients try to get long of duration (rightly or wrongly), there has also been interest in 5yr yankee’s. which show some value.

HY property moves have been dragged down by Country Garden. The company canceled a share placement last week amid growing concerns about its ability to repay dollar denominated bonds due in 2024 and a JPMorgan downgrade of its stock and bonds. Contracted sales fell 60% y/y to CNY12bn ($1.7bn). Short interest as a percentage of outstanding shares ballooned to a record 8%. To think Country Garden was investment grade until the end of June 2022. How quick the mighty fall. Now all outstanding bonds are trading below 20 cents in the dollar.

China Life Insurance Overseas (CLIO) is marketing a 10yr non-callable until year 5 (10NC5) subordinated bond at initial price guidance of 5.8% (CT5+165bp). The company is rated A1/A. China Life has a good record of calling bonds, having called CHILOV 3.35 07/27/27 in July 2022 and CHLIIN 4 07/03/2075 in 2020, and the feeling is that they will do the same for this new issue. The company looking at a deal size of $2bn, which would exhaust its NDRC bond issuance quota, but this should not faze the market as there has been a dearth of China new issuance. Expect launch spread to be 35bps inside IPG


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