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Bond Market Insights - Wed, 31 May 2023

Progress on the debt ceiling sparked a brief relief rally, 2yr yields dipped back below 4.47% after peaking at 4.64% on Friday. Front SOFR were still under pressure, as the market priced in over 50% chance of another 25bps rate hike at the June meeting. Fed’s Barkin was stressing the need to see evidence that rate hikes have curbed demand. He sees inflation as more stubborn than expected but he’ll be watching JOLTs, NFP, CPI to guide his input at the June meeting.

Tonight we have the ADP employment report, data derived from one of the biggest providers of HR software, which will set up the market for Non-Farm Payroll on Friday. Watch for a big number, which could dent the market’s enthusiasm.

US IG primary kicked off the week with $11bnof issuance from 5 companies, led by a 5-tranche deal from CVS Health, from 5yr to 40yr. Overall sentiment remained supportive, issues being priced at 20~30 bps discount to IPT and book sizes at 4 to 5 times the issue size. US IG secondary opened a couple tighter but faded as UST’s rallied.

In Asia we are waiting for the $3bn, three tranche Hong Kong (HKINTL) issue to be priced. The 3yr/5yr/10yr deal should be well received as they qualify as Level 1 High Quality Liquid Assets (HQLA). Yesterdays $500mm EIBKOR 4 ⅝ 06/07/33 came at T+90 and has widened 2-3bps in early trading. Didn’t I say that? The secondary market was fairly non-descript. In India Vedanta bonds rallied about 1pt as the holding company secured USD250mm from Glencore, backed by a pledge of 4.4% of Vedanta Ltd. They also got $200mm from Trafigura according to news reports.


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