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Bond Market Insights - Tues, 20 Sept 2022

Asia IG was mostly unchanged to a tad wider. Real money was chasing short to mid dated China Bank Leasing paper. Korean long end was heavy while Japan lifted by private bank interest.

In HY benchmark names like Country Garden and CIFI slipped 2pts despite the new issuance onshore. Powerlong, Agile and Sunac saw better buying, up 1-2pts. Gaming names were down 1-3pts with sellers of Wynn Macau and MGM. AT1 and SOE perps followed rates lower

Country Garden was in the news. They issued the well broadcasted onshore CNY 1.5bn CBICL guaranteed noted at a coupon of 3.2%. The issue was 2.86x oversubscribed. S&P downgraded the company to BB from BB+ as the decline of sales were more than they expected. Outlook was shifted to negative reflecting the possibility of their liquidity buffer further deteriorating.

Liquidity and a shortening debt maturity profile were the reasons cited for S&P’s downgrade of the beleaguered Fosun, down a notch from BB to BB-. It is left with a negative outlook.

Kaisa Group, who is working to restructure its $12bn of offshore debt, is in talks with a group of offshore creditors who are offering $2bn to acquire stalled housing projects via the purchase of non- performing loans tied to the projects at a 20-25% discount. They are also willing to share the profits with Kaisa after hitting certain hurdles. They are aiming at tier 1 or tier 2 cities, and the projects must have no off-balance sheet loans. It will be interesting to see how smoothly this negotiation goes.

While we are on the off-balance sheet items DW posted a credit report saying that Sino-Ocean's potentially massive off-balance sheet liabilities cast doubt on solvency.

As Sept 21 looms Macrohive mentions how this time around the Fed has let go of forward guidance, which is a form of tightening, as it shows that the Fed no longer has the markets’ back. There has been an internal discussion at the Fed about letting go of the dot plot, giving the Fed more optionality. The dot plot reflects what each Fed member thinks the fed funds rate should be for the next 3 years, so becomes the de facto monetary policy forecast. It was started in 2012 when Bernanke wanted to steady markets. Perhaps now is the time to let go.


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