Bond Market Insights - Wed, 20 July 2022

Tuesday saw another sell off with benchmarks 2-5bps wider and the long end wider by as much as 10bps. IG properties swooned with Longfor Group was down 5pts on real money selling.


Real money and funds sold China HY property. Country Garden was down 8pts while CIFIHG curve was down 3pts. China South City’s 2022’s dropped another 9-12pts due to the negative extension news, dragging Central China 1yr paper down 7pts to the high 50’s in its wake. Macau Gaming held in well, with bonds slipping only 0.25pt despite real money selling.


TSMC announced earlier this month that its profit surged over 76% to a record level in the Q2 2022 and that it expects the full year to be up 30%. Yesterday it lit up the new issue market with a $1bn two tranche deal, TAISEM 4⅜ 27 at T+125 and TAISEM 4⅝ 32 at T+173. Both met good demand, both tightening around 15bps.


Wednesday has opened on positive tone as the positive performance of global equities is tempting some money off the shelf. Philippine and Indonesia are 10bps tighter in both CDS and cash bonds. The less liquid sectors of EM are also starting to get traction with Pertamina, Indonesia Asahan Aluminium, Freeport Indo and Indofood all catching a bid. As the old bond saying “sell when you can and not when you have to” seems like good advice. A lot of seller have been sidelined by liquidity, they might do well to take advantage of this blip and switch into more liquid lines.


Elsewhere in EM Argentina had a tough start to the week as consumer prices jumped 5.3% m/m in June, bringing the annual inflation rate to 64% y/y. Argentine farmers are hoarding their soybean production as a result, aggravating the foreign reserves situation. The official Argentina Peso rate is around 130 to USD due to currency restrictions, but the “dolar blue”, the black market rate for US dollar bills, is trading around P300.


Panama has followed Ecuador and Sri Lanka’s lead and erupted into street protests. The workers' unions, indigenous groups and community leaders have issued a list of "non-negotiable" demands which they want met, or they demand the resignation of President Laurentino Cortizo.

Panama’s debt to GDP ratio is quickly approaching 70%, raising fears over the BBB- sovereign credit from Fitch. Panama 3.87% 2060 are down more than 20 points this year and are now in line with Mexico, which has a far stronger economy and stable social environment. Some commentators are calling for Panama to trade closer to Columbia, which would entail another 20pts of downside.


Ironically this comes as Ecuador broke its losing streak, posting gains after the government reached an agreement with indigenous groups to end the protests.


On macro today the highlights will be the inflation out of UK and Germany, although markets will have an eye on ECB and BoJ rate decisions on Thursday. News that Gazprom will restart gas exports through its Nord Stream pipeline to Europe on Thursday (albeit at reduced capacity) was a boost for EURUSD sentiment, as are reports that ECB might hike 50bps, rather than the 25bps outlined last month..


In New York the 20yr UST auction be in focus. 20yr bonds have cheapened over the last few months. Strangely the last 6 auctions have come through the market.