International Bonds Weekly : Kangaroos and Panda Bears


Some heat taken off China and the USDCNY(H) this week, on account of the attention given to US and Europe, allowing a melange of new issues (mostly not listed) including the double digit coupon, Times Property Holdings which raised CNH 900 mio at 10.375% (initial coupon 10.625%) for 3 years.

China took another step to globalising the CNH with Bank of China selling 2Y and 5Y CNH bonds in Paris, shortly after the 2 countries signed a MOU to create a CNH clearing and settlement infrastructure in Paris.

Not all rosy for Bank of China which dragged the stock market down after state owned media company, China Central Television, alleged money laundering activity.

And caution out of the S&P rating agency on China’s midsize banks to face increased credit risk.
China’s Midsize Banks Face Increased Credit Risk, S&P Says
Larger banks because of their size and reach have better credit buffers: S&P
• Slippage in loan quality was greater and faster for midsize lenders than for their larger peers over the past 1 or 2 yrs: S&P
• S&P views all mega-banks as govt-related entities, given long-term and strategic nature of govt ownership in these banks
• S&P doesn’t see govt ownership, if any, in midsize banks is strategic by nature” taken from Bloomberg.

It will be a big week next week with GDP numbers on the 16th and a week dominated by US earnings reports, BoJ, inflation numbers for US and Europe and the all important Humphrey Hawkins testimony by Janet Yellen.

Hang in tight.

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


How can we not be glum about Australia as 10 year yields hit a 1 year low and RBA Governor Stevens talks down the situation daily ?

Latest headlines 11 July 2014
*RBA’s Stevens Sees Disruption Likelihood When Fed Raises Rates
*RBA’s Stevens Sees Downturn Within Next Ten Years
*RBA’s Stevens Sees Some Investors Underestimating The Probability Of A Material Decline In AUD
* RBA’s Stevens Unlikely To Raise Rates

Thus even as analysts are yapping for AUDUSD at 0.96, further appreciation would most likely be tempered and bonds continue stomping on especially after last week’s decade high in unemployment at 6%.

The recent economic data has been disappointed with the Citi Economic Surprise Index at a record 1 year low which defies the AUDUSD levels. In terms of market positioning, CFTC shows a 1 year high in AUD longs, quite at odds with the Citi AUD Pain indicator that suggests market traders are net short.

Market appears to be ignoring the invisible hand of reserves buying, as pointed out by Citi that national reserves are accumulating at the strongest rate ever with EM countries hoarding up to USD 195 billion in Q2.

It’s no wonder we are only seeing long end issues this week in the 11 year tenors just for that little bit of extra yield.

Boo then to poor Stevens, as AUD and her bonds continue to be the whipping boy into next week and the big data we will see.

AUD Kangaroo Bond Prices (unverified)

aud bonds