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Bond Market Insights - Tues, 28 June 22

Monday saw China IG corps 3 to 5bps tighter spurred by equity markets, the UST treasury curve bear flattening and a spot of month end buying. Some real money accounts sold into this, as over the last few months spreads tend to revert wider after the month end bid.

A new issue for China Railway was announced which should be well received given the limited supply this year.

China HY property was muted and mixed. Powerlong and Ronshine were down 3-5pts as retail tried to sell in a vacuum, PWRLNG 22 closing below $40. AGILE rallied 3-4pts as the company announced a new 2nd-lien loan on a HK project. Outside property FOSUNI squeezed up another couple of points.

US Treasuries yields rose overnight as the Treasury front loaded auctions ahead of month end. The 2y came at 3.084%, the highest yield since Dec 07. The 5y auction had a 3.5bps tail, the highest since 2010, pushing the 5y to 3.29%, up 10bps on the day.10yr closed higher by 7.5bps. Europe was also weak. 10yr bunds up 11bps,

It seems that Sunac has started a new trend of renegotiating onshore bond extensions. Guangzhou R&F Properties originally got a one year extension on CNY 1.95bn 6.7% 4/22, redeeming according to an amortization schedule. It now wants bondholders to agree to halve the redemption payments from 15% or principal to 7.5% and to extend the remaining payments by six months, according to despatches. Earlier this month, Guangzhou R&F also started a consent solicitation to extend 10 USD denominated notes.

Argentina has been in the news. A staff level agreement on the EFF was reached with IMF, allowing a disbursement of $4.03bn, but the announcement of new import controls to stem the decline in reserves took the limelight, and sovereign bond prices continued to fall. There are growing concerns that the government will be forced to default on both local currency instruments and worries that this might spread to external debt obligations as well.

Russia officially defaulted on its sovereign debt, after the 30-day grace period for $100 million in coupon payments that was due on May 27th expired. Although Russia defaulted on $40 billion of its local debt in 1998, this is the first time in more than a century that it has defaulted on foreign obligations. Credit rating agencies did not immediately react to the developments as ratings were removed several months ago.

In Africa, Kenya was identified by Moody’s in May as one of the ten emerging markets most vulnerable to high interest payments as a percentage of total revenue, along with Ghana, Egypt and Nigeria. Some have turned to syndicated loans to fill the gap left by limited international bond market access.

There is talk that now is a good time for African sovereigns to cultivate relationships with ESG investors, identify projects eligible for sustainable finance, and develop frameworks supporting GSS issuance. There is work being done on a new facility being launched at COP27 to provide technical assistance for the build out of KPI-linked sovereign debt.

Sri Lanka, not in Africa, boasts biodiversity as an important resource that could be embedded into a KPI framework and they could also monitor KPI’s such as sanitation, clean water and other elements beneficial to the general public.


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