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Bond Market Insights - Tues, 18 Oct 22

It was a weak start to the week for CHINA IG, spreads 10-15bps wider, as offshore accounts continued to sell. Tuesday is opening firmer buoyed by recovering stocks and led by fast money.

Japan holds a 20yr JGB auction today, reopening JB#182. The last auction was rather poorly received at a yield of 0.894%. Domestic life insurers and pension funds have indicated that they have appetite for super long JGB’s given the current volatility and FX hedging costs.

There is a new issue in the Asia pipeline this morning! Chiyu Banking Corp has a large syndicate group pushing a US$ perpetual AT1, callable in year 5 (NC5). Hong Kong Mortgage Corp (AA+/Aa3) has mandated banks for HKD and CNH denominated social notes. The supranational OPEC Fund for International Development (AA+) is bringing a 3yr sustainability note. The institution works to stimulate growth and social progress in low/middle income countries how are non-members of OPEC.

China kicked off its 20th Communist Party Congress, with a fiery speech by President Xi Jinping outlining the progress the country made during his tenure. He touted China's rise on the global stage in hard and soft power. He also took great pride in the success the country had achieved in tackling the COVID pandemic. He declared that the Party's foremost priority was high quality economic development, but according to a socialist framework. Coincidently China abruptly delayed the publication of Q3 GDP yesterday, perhaps so as not to overshadow the rhetoric.

UK is front and centre of most commentaries after the assertive, but rather ill-timed moves of Chancellor Kwasi Kwarteng. 10yr gilt yields fell more than 35 basis points to below 4% after new Chancellor Jeremy Hunt set out policies pulling UK back into the peloton, which is where a globalist such as he feels most comfortable. The question remains, when is the best time to take medicine?

The UK has also agreed to raise sanction levels against Russia etc. in concert with US. Despite recent troubles it is still the world’s 6th largest economy and sterling is still the 4th most traded currency, so the move does have weight and is not “like being savaged by a dead sheep”.

A bit of drama in Pakistan where the embattled former Prime Minister Imran Khan's Movement for Justice Party (PTI) swept by-elections over the weekend. The PTI went for 7 of the 8 available seats and won 6. In other news the central bank kept the benchmark reference rate unchanged at 15%, claiming that the existing monetary policy mix was an appropriate balance between managing inflation and maintaining economic growth. Frontier markets have been dominated by demand for the shorter end of Mongolia, which has seen a persistent bid driving up prices by 3pts.


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