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Bond Market Insights - Tues, 13 Jun 2023

Stock markets pushed higher, gearing up for a pause in the Federal Reserve’s hiking programme. Big tech led equity gains once more, with the Nasdaq 100 up almost 2% and the S&P 500 topping its closely watched 4,325 mark. Both gauges closed at the highest levels since April 2022.

Almost US$200bn of supply hit the US market across T-bills (3-month and 6-month) and Treasury notes (3-year and 10-year) but it was well absorbed and treasuries remained stable. The US IG primary market added about US$9bn from 8 issuers to the fray.

This morning Asia credit is opening unchanged in price, so about 3 wider to US treasuries. India IG is heavy in the more liquid 10y issues, about 3bps wider.

Tonight there is a US$18.0bn 30-Year bond auction and of course CPI. Consensus is for the headline to be 0.1% m/m and 4.1% y/y. Core is expected to be 0.4% m/m and 5.2% y/y. The Cleveland Fed’s ‘nowcast’ sits at 0.2% m/m for headline and looks for between 0.4-0.5% for core. Will CPI impact the FOMC? If core inflation continues to be hot it may be more difficult to defend a pause in the wake of strong payrolls.

I have been asked to put in some good news, not easy for a bond guy, but a few good things are happening in LATAM. The Brazilian Statistics Institute has recently published fresh GDP data, revealing a notable 1.9% q/q increase, and a 4.0% y/y rise in the first quarter of this year. This can be attributed the agriculture sector, and to a continued expansion in the services sector. Fernando Haddad, the Minister of Economy emphasized the need to be forward thinking to ensure economic stability and job creation. Argentina’s external position is improving. The Central Bank of the Argentine Republic (BCRA) concluded the month with a purchase of US$451mm in the fx market. This positive performance builds on the purchase of US$850mm in May. Countering this, as I feel the need to, is Bolivia where falling revenues from gas production are having a negative influence on government and sub-government (i.e. municipalities and states) finances. Revenues fell from $6bn in 2021 to $3bn in 2022). Delays in payments from Argentina have exacerbated this situation.

Nearer to home, the IMF is working with Pakistan to fix its currency market and resolve other issues before it resumes the $6.7 billion program that ends in June. Pakistan has around $22 billion of external debt to service in 2024, which is around 5x the country’s current reserves. The main debt problem is its bilateral and multilateral obligations.


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