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Bond Market Insights - Wed, 19 Oct 22

The week’s themes remained intact this morning with Asia Credit underperforming equities and the macro environment and CDS, sovereigns and IG outperforming High Yield. China Property was down 1-2 points with real money leaning on bids. Road King and Shui On Development were in demand from private banks. Distressed names remain offered with Evergrande trading below $5, Kaisa and Aoyuan around $6, Sunac, Logan and Shimao below $10.

A few more new issues hit the street. Industrial Bank of Korea issued $600mm INDKOR 5 ⅛ 10/25/24 at T2+70. Another Middle East issuer, Mamoura Diversified, the fund-raising arm of Abu Dhabi’s $284bn sovereign wealth fund Mubadala Investment, issued $1bn MUBAUH 5 ½ 04/28/33 at T10+132. This is a Formosa bond, so targeting Taiwanese Life companies.

Chengdu Sino French Ecological Park Investment issued $200mm CDSNFE 6% 10/21/25 backed by a SBLC from Bank of Shanghai. To clarify a standby letter of credit, once issued, is an irrevocable, independent, documentary, and enforceable commitment. It was sought by China’s companies to issue overseas bonds as early as 2012, when the Bank of China (Beijing branch) issued an SBLC to China COSCO Holdings. But it took a while for both issuers and investors to become familiar with the concept. After successful reimbursement claims in 2019 and 2020, a growing number of China’s offshore dollar bonds have been issued through an SBLC.

Overnight Fed Kashkari was adding to the hawkish pile, saying that inflation has not yet peaked and unless there is help from the supply side rates will have to rise. US Treasuries hardly reacted as volumes were low with few wanting to get involved. The market was affected more by UK inflation, which came in slightly higher than August at 10.1% Y/Y with core at 6.5%.

UK was also in the news with PM Truss casting doubt on whether UK Pensions will keep pace with inflation and could be adjusted according to the rise in average earnings instead. BoE has confirmed that they will begin Gilt sales in November but will avoid the long end this quarter. Gilts have opened lower, but without much conviction.

Reuters announced that Germany was increasing the size of 18 outstanding bunds by EUR 3bn each, total EUR 54bn. This headline is a little misleading as it is not an increase in issuance, but is an increase in bonds available to be repo’d. The UK DMO does this on a quarterly basis and no one cares, but bunds have moved lower.


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