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Bond Market Insights - Wed, 17 May 2023

The US Treasury market had been well bid into the US open, but then got hit as the data came in. Core US retail headline number was lower than expectations, but ex fuel and autos and the retail control group were higher than expected. Industrial production was also higher, up 0.5%mom in April vs the consensus of flat. The NAHB housing market index beat expectations as well, up 5pts in May to 50.

A multi-tranche auction of $12bln MBS to the street added to the misery. This is part of the ongoing SVB and Signature liquidations, but today was the largest chunk sold off in one clip. There was no respite as more Fed members hit the wire creating with a more hawkish tone. Close to the bell there was a bit of optimism on comments from the White House on the debt ceiling.

The US IG primary market added more supply with Pfizer issuing an enormous $31bn deal, the 4th largest ever, spread over 8 tranches. The deal drew $85bn of orders as the issuer offered healthy. The monies will go towards funding its $43bn acquisition of the biotech company, Seagen. Most of the bonds included SMR or Special Mandatory Rights provisions, which would allow for the bonds to be called by the issuer should the deal fall apart. These provisions do not apply 10yr and 30yr tranches, which are the largest and most liquid. An extra sweetener for the 20yr and 40yr was the discounted issue price, priced below 100 (par). The SMR strike price is at 101.00.

Asia had a couple of new issues: Shandong Hi Speed (A3/A) replenished working capital with a $300mm 3yr at 5.1% vs initial price talk of 5.7%. BOC Aviation (A-) got $2.5bn of orders for a $500mm 5yr at 4.5% T+120bps vs initial guidance of T+160. Today Korea Credit Guarantee Fund is pricing a 3yr senior unsecured social bond. The issuer, AKA KODIT, is a quasi-sovereign which supports SME’s.

Asian credit spreads are opening mostly unchanged this morning, Thai spreads 2bps tighter on back of buying in some long-end paper and the new BOCAVI 4 ½ 05/23/28 has pushed 5-6bps tighter. The high yield property sector continues to be led by lower quality issues, but the fragility is pushing into better names, such as Longfor and Shuion. China SOE’s are becoming more difficult to source, particularly in shorter tenors.

In the Asian Frontier markets Pakistan outpaced Sri Lanka, in April, to become the country with the highest inflation rate in Asia, owing to a weaker currency and continued increases in food and energy. The inflation rise of 36.4% y/y in April, which was the highest since 1964. Sri Lanka, however, recorded a rise of 35.3% y/y last month, a slight recovery from the crisis it has been facing. The Pakistani rupee is one of the worst-performing currencies in the world, having depreciated by 20% against the dollar since the start of the year. The inflation rate in Pakistan is expected to rise even further, as authorities have raised taxes and fuel prices to fulfill the International Monetary Fund's bailout package conditions.


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