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Bond Market Insights - Wed, 26 Apr 2023

Yesterday saw a return of return of the flight to quality narrative as yields plummeted as First Republic announced that they are considering selling $100bln in assets. After a pretty violent kneejerk sell off the market recovered as First Republic stock sold off. The short end got another boost from a pretty solid 2yr auction, 2’s went out around 3.95%. The market seems to think that a credit tightening is on the horizon and this will be worth about one percentage point of Fed tightening. The market is pricing in a 19bp hike for May.

Will Chairman Powell stand strong or will he blink again? No one knows. Hedge fund manager Stan Druckenmiller told the FT that short USD is his only high-conviction call at the moment. Is this the next overcrowded trade? . Volumes are low in all markets with so much uncertainty on the macro-level with an eye on the Fed, the debt ceiling and geo-political tensions.

Asian Credit was unchanged to slightly softer yesterday. Korea Ocean 5yr, a small 300m issued at +110, improved to +105, as bank books hoovered up the loose bonds (or is that “Dysoned” nowadays?). India and SEA were dominated by ETF and real money selling. SK Hynix got a first-time rating of BBB from Fitch which rather hit sentiment, bonds widening 3-5bps. Malay and Thai corps slipped on real money selling. The focus today will be a new issue for BOC Aviation (A-), $500mm 10yr at T10 +160. The bond received bids exceeding $4.6bn from 240 investors. Joining in the fun SMBC Aviation Capital Finance(A-/BBB+) has just announced a new issue, a 5yr with initial price talk of T5+240bps. SMBC Aviation used to trade through BOCAVI, Recent results have been strong despite loss of revenues from Russia, the assets of which were written down in March 2022.

US macro data will focus upon durable goods orders that should get a lift from planes given guidance from Boeing, but core orders that serve as a proxy for underlying equipment investment are expected to be soft.

Last week Sino Ocean Land (SINOCE) short dated bonds fell 16pts on rumours that they contacted creditors to form a committee to look at the company’s financing and debt-restructuring, later denied. Wanda Properties (DALWAN) was hit as much as 20 pts over the early redemption of offshore loans triggered by the postponed IPO process for Zhuhai Wanda Commercial Management. Earlier this year DALWAN took advantage of the reopening of offshore financing channels, issuing $800mm in bonds. This access to liquidity for privately owned developers has closed down pretty quickly.

Q1 sales contracted sales for privately owned developers (POE’s) were down 53% y/y, although Longfor Group was up. Local SOE’s saw a 16% uptick. The POE’s with the most refinancing needs in 2023 are Wanda (RMB17.2bn) and Country Garden (RMB16bn)

News is out that Evergrande achieved around 50% of bondholder RSAs (Restructuring Support Agreements) as of the end last week..


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