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Bond Market Insights - Wed, 06 Dec 2023

The US JOLTS report for October plunged far more than expected (8.733 million vs consensus of 9.3 million, with a downward revision to Sept) and dovish comments from ECB pushed 10yr UST yields down to 4.2%. (The Job Openings and Labor Turnover Survey is released by the US Bureau of Labour Statistics). Non-Farm Payrolls are out on Friday.

The sentiment garnered from bank CEO’s at the Goldman conference was for a soft landing in the near term, consistent with the view from the Oct Q3 conference calls. Hefty rate cuts are at odds with such a view. The market should be near the top of the move now that 2yr yields have rallied 60bps, and rest of the curve closer to 80bps.

ECB hawk Schnabel said no additional rate hikes are needed given a “remarkable” inflation decline, while Eurozone inflation expectations were unchanged at +4% (12 months) and +2.5% (three years).

Moody’s downgraded its outlook on China’s government credit ratings to negative from stable, expecting Beijing’s support and possible bailouts for distressed local governments and state-owned enterprises to diminish China’s fiscal, economic and institutional strength. They kept China’s A1 rating. Asia credit, including China disregarded this news and kept its bid.

Demand for Adani paper remains solid, buoyed by a report that the US Government had concluded that the accusations levelled at the Adani Group by the Hindenburg short seller report did not apply to Adani Ports before extending financing last month, which contributed to the recent squeeze in ADSEZ paper.

The recovering AT1 hybrid market was boosted by the UBS announcement that its plans to redeem its US$ 2.5bn 7% Perp by its first call date on 31 January 2024. The move is seen as an effort to reassure investors about its ability and willingness to call back its AT1s on their first call date. This comes after UBS successfully priced a US$ 3.5bn dual AT1 issuance at 9.25% last month. UBS has two other non-USD AT1s callable in 2024.


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