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Bond Market Insights - Wed, 03 May 2023

There is so much for the Fed to consider at this month’s meeting. If they do not hike and declare that the hiking is done they will be intimating that the Fed is spooked by everything around it. To do nothing and intimate that hiking is on hold for a while is a continuation of the “we don’t know” message from the last meeting. Not good for an agency who needs to bolster its reputation. It seems the only option they have is to hike 25bps, a sort of dovish hike, and leave the door open to a further hike through guidance.

Saying that external threats to the economy abound. Firstly, the debt ceiling. Yields on Treasury bills for early June jumped in New York trading on Tuesday to around 5.5% in the wake of the warning from Yellen that the US government could run into debt-ceiling limitations as soon as June 1.

Or perhaps; Firstly the regional banking issue. KRE US, the regional bank ETF, took another leg down yesterday, falling over 6%. California based PacWest closed down 27%, and Western Alliance down 15% on the day as attention switched from First Republic Bank. Deposits have been flooding from regional banks to money market funds and larger financial institutions, while $1bn to Apple’s newly launched high yielding savings account.

The Eurozone April inflation numbers were basically in line with expectations, up 0.7%mom, 7% yoy, and core at 5.6%. Eurozone manufacturing PMI revised up 0.3pts to 45.8 in final read for April. A bit of a reprieve for the ECB

Asia is dominated by Golden Week holidays in China and Japan, so flows are subdued (again). Korean battery maker SK ON issued $900mm SKONKR 5 ⅜ 05/11/26 (Aa3 Moody’s) at T5+126.5, guaranteed by Kookmin Bank. The market is starved of issuance and $5.2bn of bids were received from 230 investor accounts. The bond is trading a few bps tighter this morning.

In China HY there was more pain as KWG ‘s news pushed bonds down 5-13pts. Sellers emerged for AGILE on back of this.

Month do date the Adani complex is up between 1.5-4pts led by ADANIG & ADSEZ 24. They have announced plans to raise as much as $1.5bn through bond sales by Adani Green Energy and Adani Ports, with tenors as long as 20yrs. Business continues despite the disruption caused by the short selling researcher.


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