Bond Market Insights - Wed- June 22 2022

China HY was weak yesterday despite strong equity markets, partially due to fund outflows. Distressed flows saw sellers of Sunac, Aoyuan and Yuzhou and better buyers of Zhenro and Yango Justice. Macau gaming was unchanged after the recent slide but China HY industrial names had another very weak day. Fosunb was down 11-15pts on heavy selling from PBs and RM, while other industrial names were down around 3 pts with trading accounts trying to get short.


This morning Fosun updated its tender offer, now instead of a $200mm ceiling the issuer is now offering to purchase for cash any and all of the 2022 and the 2023 notes. FOSUNI jumped 5pts at open and there was a short squeeze in other China HY industrial names


China IG pushed higher as street buying was fueled by real money picking up benchmark names, closing by 6bps tighter. Selling was apparent in 2022/3 paper and non-call 2023 bullets and perps were marked 10bps wider vs 2yr US treasuries by dealers, who have passively taken on long positions for a while, but are now getting squeezed as the cost of funding goes up.


India HY was also soft. VEDLN led the move, 2pts lower on the back of equities as Vedanta explores buying a stake in Hindustani Zinc from the government. Renewables have underperformed recently but the selling seems to have switched to industrial/steel names, Tata and JSW Steel being hit hardest..


New issues for Korean entities performed as expected. Korea Western Power 3.776% 25 came at T2+105 and tightened to +96, Hanwa Energy 4.125 25 was issued at T2+102.5, tightening to +93. China issues included $300mm 3yr for Linyi City Development and a small deal for Fujian Jinjiang.


Markets rallied back slightly in New York, taking their cue from the better tone in Europe. Richmond Federal Reserve President Thomas Barkin said that the Fed should normalize policy as soon as possible. This was meant to mean that the Fed would raise rates quickly in order to bring them back down as soon as possible. There is a growing consensus that Fed Funds will reach 3.75% by year-end


There is a large redemption schedule for USD China real estate bonds in June–July, as there is for onshore trusts and bonds, with nearly Rmb150bn maturing each month. Onshore the secondary market continued to widen in May, while offshore bonds fluctuated. USD bonds trended upward in early May, peaking as the PBoC cut the lower limit of mortgage rates and started to decline following Sunac China’s default and the worsening credit risk of Powerlong Group.


CICC thinks real estate investment has yet to reach an inflection point saying that investors could consider replacing some LGFV bonds with real estate bonds issued by central SOEs and state-owned property developers, and suggest focusing on short maturities, subject to the usual disclaimers.

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