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Bond Market Update - Tues, 13 Sept 2022

Spreads in Asia opened firm ahead of CPI tonight as stronger macro and limited primary issuance kept credit well supported. Spreads are opening 2- 3 tighter as HK returns from holiday.

Current inflation rhetoric seems to be working. Concerns about the slowing global economy have led to a sharp decline in commodity prices. Oil prices are down 30% from their recent peak in June, Copper prices is down 20% and soybean prices are off 16% over the same time period. Fed 3-yr inflation expectations are down to the lowest in almost two years, at 2.8% in August.

Brainard latest message was mixed. The Fed is “in this for as long as it takes to get inflation down” and “monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target”, she continued to highlight several reasons why inflation should moderate over time.

Across the Atlantic headline UK CPI is expected to stay unchanged at 10.1% yoy and commentators are reducing peak expectations from 14% to around 10.5% on the back of the Energy Price Guarantee scheme.

The well broadcasted onshore funding is starting to emerge for Chinese Property. Country Garden and Seazen Holdings (FTLNHD) are proposing CNY 1.5bn and CNY 1bn three-year MTNs respectively. Both will use the proceeds to repay debts and fund project development. The bonds will be guaranteed by China Bond Insurance. Country Garden’s CBI bond guarantee is backed by guarantee from two Foshan LGFVs, according to DW.

September and October are traditionally peak season for sales. Perhaps not surprisingly China Evergrande is requesting 38 property projects to resume construction by end of September, although this could also be political.

The 20th Party Congress kicks off on October 16th, it is focused on shuffling personnel, including provincial and municipal, so does not make major policy announcements. The usual push for stability is in evidence, whether in response to Covid, or the property market. The Congress is likely to close October 22nd with the announcement of the new standing committee and Politburo announced the following day. Xi Jinping is expected to stay as leader of the government, the Party and the military.

It is expected that current central strategies will remain at least until end March 2023, when the reshuffle completes, only then could we see a move away from the current zero covid policy.

China has asked banks and state owned enterprises to report their exposure to Fosun causing shares in Fosun International to fall 7.4% in HK. The FOSUNI fell 5-7 points, led by the front end. FOSUNI 26 is now trading around 45.00.


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