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Bond Market Insights - Wed, 22 Mar 2023

In US treasuries the last six trading sessions had a 2yr range of anywhere from 37bp to 81bp. Today we only saw a 27bp range from the overnight highs to the NY lows. In front of today's Fed decision the curve flattened across the board, and the market is now back to pricing in an 80% chance of a 25bp hike, futures pricing in 20bps.

The 20yr auctions was uneventful, tailing 0.3bps despite a solid intraday concession; non-dealer demand dipped to 88.1% after a record high 93.3% at the previous auction.

The AT1 hybrids closed in Europe up between 3 and 7pts yesterday, basically back to the Friday’s closing levels in the stronger names. The benchmark HSBC 8% perp closed Friday 95.00-96.00 then traded down to the low 80s on Monday morning. It is now back to 95.50-97.50. Much of the selling was from real money in the last few days, while hedge funds have been buyers.

Meanwhile in the world of senior holding company debt the spread to UST’s on UBS 10yr benchmark recovered by over 100 bps. CS 10yr holdco debt has had a bit more of a rocky ride. Closing around 77.00 on Friday they were trading back around 114.00 by the close yesterday.

UBS has just announced an offer to buy back two dated bail in bonds that were priced on March 9 and were issued last Friday, great timing! The bonds are UBS 4 ¾ 03/17/32 and UBS 4 ⅝ 03/17/28.

In Asia the China state owned, but not guaranteed Sino Ocean Group elected to defer a coupon on SINOCE 6.876 PERP (rated B2/B+). According to the hybrid bond’s indenture there is no cross-default to other SINOCE debt. Several China HY property developers have been using the 30 day grace period on missed coupons for capital management, paying at the last possible moment. China HY property: bonds were stable to +50c. Wanda Properties bonds' were up 1pt after the $380mm DALWAN 8.875 23 was successfully redeemed today, real money were adding across the curve. Sinoce bonds also bounced 0.5 to 1 pt after the big sell-off yesterday,, Private Banks and real money adding.

Asia CDS opened a few bps better and IG cash bonds met a strong wave of short covering from fast money accounts, some bonds rallying 8bps. Through the morning there was good buying from funds and mixed interest from real money. Perps and AT1s improved 0 .25-1pt taking prices almost to pre SVB levels.

Argentina decided to delay a $2.6 billion payment it owes the IMF. The delay was agreed with the IMF, and it will not be an incident of default but confirms that international reserves are very tight due to the lack of incentives for exporters to repatriate funds and the over-valued official exchange rate. Inflation is now in the triple digits and the level of economic activity is declining.


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