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Bond Market Insights - Wed, 12 Apr 2023

The front-end led the move lower ahead of tomorrow’s CPI. 2yr yields hit 4.08%, 2s10s flattened to -63bps nearing levels traded into last week’s weaker JOLTs job opening figure. Supply added to the pressure as the Treasury sold $40bn 3yr notes. Fed Speak was mixed with Williams focusing on data and Chicago's Goolsbee on financial stress. The market continued to unwind some of the rate cuts priced to 2H2023 with Dec OIS up to 4.435, +48bps from last week’s lows. 19.5bps is priced in for the May hike.

Tonight Core CPI is most important, with consensus being for 0.4% m/m seasonally adjusted. We have had a string of similar numbers over the past 3 months and there has been a similar trend in core PCE. The Fed is still a long way from the 2% target.

The FOMC minutes will be released tomorrow. Hopefully we get a bit more than Powell’s “We simply don’t know” answer to how the stress in the banking system would affect things. As discussed yesterday usage of the discount window and the Bank Term Funding Program has waned and reserves are back on the decline, so the Fed should revert to addressing the persistent, elevated core inflation.

In Asia credit there was short-covering in the longer end China TMT, which tightened 2-3bps the short end remains heavy, despite the higher US treasury yields. High Yield property bonds were immune to the 5-15% rally in property stocks which were excited by an onshore much followed hedge fund manager’s opinion on how cheap property stocks are, while credit world is still consolidating after the sharp rally at the end of March.

Singapore dollar bank paper is still consolidating. A few more real money and private banking buyers are pecking at Foreign bank Tier 2’s. The shorter-call AT1s are also finding clearing levels. Prices have risen 1-2pt pts over the last couple of sessions. Bank capital bonds are the more liquid bonds in the sector, liquidity in other bonds, whether corporate or stat board, tends to peter out in the weeks after they are issued.


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