International Bonds Weekly : Kangaroos and Panda Bears

We have thrown in a CNH section to the International Bond Weekly report. For a start, we have prepared a list of 2014 issued CNH bonds listed in HK and SGX and their approximate price levels from our estimation models.  We hope readers will find this useful.



A positive week for China with strength in their latest PMI numbers which sustained equity markets, leading to talk of the central bank draining liquidity in a form of targeted bill sale to ICBC (Industrial and Commercial Bank of China) and CDB (China Development Bank) as a sign of capital inflows back onshore.

Bonds continue to rule as Chinese sovereign bonds posted their largest quarterly gains in 2 years end June. Going ahead, bonds are expected to hold their own as IPO fever grips China.

There is every reason to believe that the PBOC will continue to keep conditions favourable to their goalpost of an equitable society as noted in their statements this week urging trial of borrowing against rural property rights and finance services for povery reduction.

Chinese regulators increased banks’ capacity to lend money and bolster the slowing economy by changing the way loan-to-deposit ratios are devised.

Banks from today can include in the calculation negotiable certificates of deposit sold to companies or individuals, the China Banking Regulatory Commission said in a statement yesterday. They can also exclude loans advanced to small enterprises and the rural sector that are backed by bonds, the CBRC said. Bank lending is capped at no more than 75 percent of deposits to prevent an overextension of credit.”

Whilst the situation looks good, the outlook is still fraught with risks with RMB $ 1.5 trillion worth of trust products maturing in the year ahead which is a time bomb, as Credit Suisse alleges. And it does not help that the regulator in charge of overseeing the trust companies has just died of “overwork”.

“Li Jianhua, the 48-year-old in charge of the China Banking Regulatory Commission’s division overseeing the boom in trust companies, died of “long-term overwork” in April, his employer said last month.”

Yet Chinese property names did rally 1-3 pts in the USD high yield space and CNH bond prices are holding well as we agree with Singapore’s deputy PM that China’s moves are far-sighted ones.

2014 CNH Bond Prices listed in SGX and HK (unverified)




Investors, including Singapore companies, cannot get enough of Australian assets. The macroprudential rules of Singapore’s central bank only deters the little individuals from borrowing too much, leaving the companies alone.

In this week, we have Fraser Centrepoint going for Australand and Aspial launching a S$1 bio Melbourne skyscrapper project offering the highest residential units in the southern hemisphere.

Even the AUD bonds are unstoppable, despite US bond yield weakeness, with the latest government bond auction oversubscribed 3.6 times as economic data lagged and the RBA held rates at their record low of 2.5% .

The RBA Governor Stevens blamed the currency as an impediment to growth, along with goverment spending cuts and commodity prices. Yet there is only so much he can say or do, because the fact is that RBA will not be able to do much against the EUR, JPY and gang who are waging an all out currency war in the name of deflation.

And AUD bonds are still the meatiest lot in the investment grade world.

The correction that we are calling for in the AUD dollar may have started but I do not think we can get past 0.92 against the USD in the near term for the same reasons that the EUR is unable to depreciate as the world weighs out the pros and cons of being America’s friend.

As a US ally,  the helpless AUD would glean direction from the FOMC minutes next week to be released early morning 2am on 10 July which will be followed by the Australian employment numbers at 930 am. The market positioning suggests a AUD correction till then and we can expect the correction to extend on the slim possibility of an unexpected hawkish stance out of the Fed.

AUD Kangaroo Bond Prices (unverified)

aud bonds