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Bond Market Insights - Wed, 30 Nov 2022

Asia IG was strong on Tuesday, spreads 5-10bps tighter. In the morning, Real money was extending duration in China SOE’s, putting the short end under pressure, which provided fodder for some asset managers to park cash into the Asia close. Local Government financing vehicles were up 0.25-1pt with 3-5yr paper being bid by RMs and asset managers looking for 1-2yr paper.

High yield property names Yanlord, Shui On and Country Garden were up 3pts. Seazan continued its march upwards, with the short end up as much as 8pts. The short end of FOSUNI (BB-) is now trading with a 90 handle, having traded in the 50’s 6 weeks ago, with better buying interest evident.

There was considerable client demand across Singapore banks, UOB particularly. Tier 2 continues to outperform. Demand also continues for Singapore airlines as SIASP 3 ⅜ 01/19/29 approach all-time tights in spread.

Asia is consolidating this morning following the weaker overnight tone in US IG, rather than fresh selling from Asia clients. There was some positive news out on Genting regarding an asset sale in Miami. GENTMK 4 ¼ 01/24/27 have settled between $89/90 with good two-way flows evident.

There were some interesting developments in LATAM. El Salvador decided to capitalize on its previous successful buyback by announcing a small ($74mm) tender offer for the 2023 and 2035 bonds. They probably hope that despite the size the headline will continue to generate a bid for the sovereigns. Probably a better policy than putting scant reserves into bitcoin.

Ghana presented a preliminary outline of the sovereign debt restructuring and there are reports that the government is looking for a 30% principal haircut, a three-year grace period on debt service and a reduction in coupon payments. The objective is to reduce the debt to GDP ratio to 55% and the external debt servicing to 18% of annual government revenue by 2028. They are also in IMF negotiations for a three-year $3 billion Extended Fund Facility. Ghana bonds have stabilised recently, having halved in value since the beginning of the year, GHANA 8 ⅛ 03/26/32 are currently priced around 34.00.

The IMF approved a support program for Paraguay on the promise of policies to guarantee macroeconomic stability, promote economic growth and improve social protection, while keeping the fiscal deficit below 1.5% of GDP.Fitch confirmed Paraguay's sovereign credit rating at BB+ with a stable outlook. An upgrade to investment grade will probably have to wait for the results of the new reforms to establish rule of law before making the move. Paraguay already trades like IG, with the spread on the 4.95% 2031 at T10 +184 bps, but there is a feeling that a move to investment grade would probably result in another 100 bps of tightening.


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