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Bond Market Insights - Wed, 7 Sept 2022

On Tuesday Asia IG strengthened. TMT long end was driven by real money buying and finished tighter by 3-5 bps. HY was also positive, with Country Garden and CIFI, the bell-weathers, rising 2-3bps. China SCE Group swooned as much as -6pts on domestic news.

Overnight nineteen US borrowers including Walmart and McDonald's priced more than $35 billion IG debt yesterday. Issuers paid just over 10 bps in concessions on deals that were 2.8 times covered. Final order books settled at about 30% below their peaks. Supply seemed rather well absorbed as accounts seem to have positioned themselves in expectation of $55bn of issuance over the week. Secondary spreads finished about 3-4bps wider.

Yesterday the new INDON announcement put a dampener of Asia sovereign names, with the long end repricing down 1.5pts. This morning Indonesia saw another wave of selling at the open, but some buying is now creeping in. EIB Korea new issues have performed well. 24’s are 9bps tighter, 32’s 7bps, the 5yr 4bps; it seems to have stabilised here. Korean Air has mandated for 3yr senior unsecured notes, while Korea Housing Finance is mulling CHF, USD or Euro for covered bond issuance, adding some diversity to their offering. Norinchukin and Mizuho are representing Japan banking this morning, both with dual tranche offerings. The Japanese leasing company Mitsubishi HC Capital is considering either a 5yr or 10yr US$ bond.

The FX markets are a focus for us all. It seems there is no upside for currencies that aren’t tightening, as demonstrated by the weak JPY and TWD. Yesterday was very interesting in CNH. The day started with everyone expecting a very strong fix, since on Monday the PBOC had cut the FX reserve ratio, hinting at displeasure with the speed of the depreciation. But the fix came above 6.90, a barrier which the PBOC had protecting for six days. The market then bid up USD, quickly moving from 6.93 to 6.95. Among the buyers were large MNC’s who often set the tone. There was an absence of official USD selling, even when the evening fix loomed and 6.977 was hit. This morning we are capped at 6.98 so far, but the market is looking to break 7.00. Before this move the view was that 7.00 would not be breached before the 20th Party Congress, so a lot of upside structures have a 7.00 knock out. Next stop 7.20.

BOE watchers may get fresh policy clues ahead of next week's MPC meeting when Governor Andrew Bailey and several committee members testify to Parliament today. His take on the proposed energy plan will be interesting as it is a loggerheads with the BOE's attempt to slow demand to bring down inflation. On Monday Catherine Mann, one of the external members of the bank’s MPC, said interest rate rises needed to be “fast and forceful” in order to show the BoE was serious about meeting its inflation target.


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