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Bond Market Insights - Wed, 18 Jan 2023

In Europe yesterday a Bloomberg ECB source article claimed that the case for switching to 25bp, following 50bp in February was gaining traction. The market was blind-sided given Lagarde had previously spoken of the next two hikes being 50bp and this was near-priced in. ERM3 instantly leapt 0.13 and the Schatz drove 20c higher. The Bund-BTP spread moved 6bp tighter and is now at its tightest since last April. Greece opened the books for its new 10y benchmark bond at mid swaps +175bp area and received over EUR 17.5bln pulling the spread in 5bp. Eventually they printed EUR3.5bn, larger than market expectations. Bund-GGB spread quickly widened 8bp.

Index-linked Gilts traded heavily following a decent labour market report. Breakevens dipped 8bp in the belief that the BoE would react to the firmer than expected wage data.

Asia credit opened with a positive tone, with good demand seen for China SOE names ahead of Chinese New Year. The new $600m Woori Bank 5yr Fixed came at T +135 and traded 17-18bps tighter after the break.

Aussie T2s another 3-5bps tighter this morning, that’s 15-20bps tighter over the week so far. Seeing good demand in this time zone from retail, banks and AMs vs more two-way activity in the US. The new Macquarie Bank (MQGAU) 33s been the outperformer, 33bps tighter from reoffer.

The BoJ maintained its 10-year JGB Yield Target at around zero, which caused a spike in everything from US treasuries to European equity futures and JPY weakened by 1.6%.

Chinese Vice Premier Liu He delivered a speech in Davos. He mentioned that China’s economy has been normalizing faster than expected and that China’s growth in 2023 will most likely return to “normal” trend.

Liu also said that the property sector was a pillar of Chinese economy, which accounted for 40% of bank lending, 50% of local fiscal resources and 60% of urban household assets, reaffirming PRC Central Government’s latest supportive stance.

Country Garden repaid COGARD Jan 2023, which came due yesterday. Country Garden has RMB6.0 billion onshore public bonds, including asset backed securities with a soft maturity in 1H 2023 based on Deutsch’s calculations. Offshore redemptions come into focus when the 2019 Facility Agreement comes due in July 2023.


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