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Bond Market Insights - Wed, 10 May 2023

A very strong 3yr auction hardly helped pare the losses of the last few sessions in US Treasuries. Fed's Williams is "not seeing" a wage-price spiral today, wage growth has slowed and "now stabilized" at a high level”. The Fed is now "very focussed" on commercial real estate risks.

The US IG market focused on new issues with another 4 deals coming, led by BP and Conoco Philips. The secondary sector was broadly bland, with HQ under some pressure from the $5bn of supply, bringing the tally to $28bln for the week,

In equities volumes remained low, about 10% below average daily volumes. Bears were in control, taking encouragement from the inability of banks to rally, the stressed commercial property sector, China’s slow rebound, tech guidance being poor and lack of resolution in the debt ceiling debate, McCarthy rejecting the idea of a short-term debt-limit extension.

No real progress on the debt ceiling should be expected until either the exact x-date becomes clear, instead of some vague guidance from Auntie Janet, or the markets get way more agitated

In Europe stocks slipped as SBB, the Swedish commercial real estate landlord, which everyone knows stands for Samhallsbyggnadsbolaget, or perhaps Norden AB, halted dividends, deepening worries about the real estate sector. The stock sank a record 24% as it also canceled a rights issue after S&P Global Ratings downgraded its credit rating to junk.

Is the old adage to “sell in May and go away” going to prove correct once more?

Yesterday there was demand for China IG as higher yields attracted buyers, especially 10-30yr part of the curve. Alibaba, Tencent, Baidu, HKAA were all popular, tightening in 2-5bps for most bonds. Buyers included real money and Life Co’s. HY was hit by headlines on Dalian Wanda, who is in talks with major China banks for loan relief. DALWAN bonds were down 7-10 points, the sector down 1-3points.

Today China IG is opening mostly unchanged, TMT long tenors are still inching tighter. In corporate news GLP’s BBB- ratings were placed on rating watch negative by Fitch. A downgrade to HY would take GLP out of the IG bond index and would make it the third fallen angel of the year following Huarong and Nissan. For context Huarong is over 100bp tighter than before the downgrade review with HY index trackers buying. Nissan is ~60bp wider as an off-index bond, but has since had good results.

China Fortune Land (CHFOTN -/-/-) 1Q23 Results were weak. Pre-sales dropped 48% y/y to US$3.3bn, revenue increased 30% y/y. EBITDA contracted by more than half thanks according to some analysts. There was no trades observed in the market for CHFOTN bonds, which remain illiquid at around 20 cents in the dollar.

China's exports grew 8.5% YoY in April 2023, while imports declined 7.9% YoY. The export growth rate decelerated compared to the previous months, partly due to weak overseas demand and the fading effect of backlog orders. Imports declined due to weak domestic demand and global supply chain adjustments. May's export growth rate is expected to slow down due to a higher base, the fading effect of backlog orders, and weakening overseas demand. The weak imports in April were also partly due to weak domestic demand and global supply chain adjustments.


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