Presenting The …. Brekkie Bond Wrap

The first of our dailies which will be served with consistency (hopefully) if we find an appreciative audience. Serving up our first Brekkie Bond market Wrap, an overnight summary of market events and insights, along with our opinions and analyses.

Enjoy ……

Daily Credit Wrap

The Asian HY market was softer on Wednesday as the weaker macro backdrop weighed on sentiment.

Shimao did a USD300 mm tap of the recently issued 2022s at 8% yield (PRICE 101.723). They consequently traded as low as 101.25 but firmed up subsequently on order books in excess of USD1.5b. Shimao 22s are currently quoted in the 101.375/101.75 context. Other Chinese property bonds were down ¼-½point.

The Kaisa curve stabilized and actually moved up 1-2 points as selling slowed down. Expect this space to continue to be volatile with 2 coupon payments due next week.

Indonesian corporates faced more pressure as the USD/IDR decisively breached the IDR13,000 level. Overall, Indonesian corps are down ½-¾ point.

IG spreads were similarly softer with net selling across the China/HK space in the oil and BBB space. But it felt like dealers had appetite to absorb bonds and buyers did emerge later in the day to close broadly unchanged.

Main focus of the day was on the mega multi-tranche USD deal from Petronas. It sold US$3.75b of conventional 7yr (T+130), 10yr (T+150) and 30yr (T+190) bonds and US$1.25b of 5yr Sukuk bonds. Bonds are being quoted in the grey 5-10 bps WIDER than reoffer. This is unsurprising given that they priced 20-30 bps tighter than initial guidance. So much for final order books being US$18b!

I would expect the credit markets to continue to trade in a consolidative mode with continuing weakness in US equity markets and falling oil prices dampening risk-taking appetite in our space. Continued underperformance in the new Petronas bonds, coupled with increasing jitters about an earlier-than-anticipated Fed rate hike would keep IG investors at bay. I am slightly more sanguine in the HY space, given that it’s historically more insulated from interest rate worries than its IG cousins. Growing expectations about further monetary easing from the Chinese authorities will also keep Chinese HY names supported, while near-term developments surrounding Kaisa and concerns about its non-payment of coupons next week will be the main driver of real estate bonds.