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Bond Market Insights - Tues, 30 May 2023

Biden and McCarthy announced agreement on the “Fiscal Responsibility Act”, suspending the debt limit until 2025, capping discretionary spending for the next two years and making a number of narrower policy changes. This eliminates most of the uncertainty over the impending debt limit deadline, although it still has to go through the House and Senate. The House is slated to vote tomorrow, Weds May 31. The Senate could vote on Friday, June 2. The odds for no deal from Congress by June 5 seem low.

Goldman Sachs argues that the market reaction to the debt ceiling debate itself is really quite irrelevant. The important thing is where will the T-Bill market find liquidity enough for the US$ 600bn to US$ 1tr of issuance needed to rebuild the Treasury General Account (TGA). If from money market fund holdings or RRP balances the liquidity squeeze will be much less than if it comes from bank deposits.

Asia IG opened pretty much unchanged after the long weekend in the US and Friday's HK holiday. The benchmarks rolled to the new 2yr and 5yr treasuries. EXIM Korea (EIBKOR) announced the initial price talk for a new 10yr bond at T +120. The best comparison would be the EIBKOR 5 ⅛ 01/11/33 which is currently trading around +90. The 3mo longer maturity is worth about 1bp and there might be a slight new issue concession, so fair value could be around T+94 extension vs EIBKOR 33 at 1-2bp. Bear in mind a new deal for KDB is also in the wings.

Wanda Properties (DALWAN) leapt 8pts yesterday, giving real estate a better tone this morning for benchmark names, LNGFOR and COGARD +1-3pts, VNKRLE +0.5pt. The property rally seems to be more about positioning than anything else as stocks like Country Garden (2007 HK) are down about 4.5% today. Many of these performing names sold off as much as $20-30 pts in last two months. Distressed names are not moving.


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