Daily Brekkie Bond Wrap

Daily Credit Wrap:

Investment Grade:
Asia IG had a weak session yesterday with oil and energy names underperforming as the bottom fell out of oil prices. We heard of selling in Sinochem bonds which widened out by 3-5 bps. There was also a soft tone in tech with BABA bonds a couple of bps wider as investors continued de-risking ahead of FOMC. The recently issued Petronas bonds continued to be active with spreads holding up well as loose bonds got cleared up. Indian bonds are also stabilizing after significant widening over the last couple of days.

High Yield:
The Asian HY market was similary weak with Chinese property bonds down ¼ – ½ point. Evergrande was in the spotlight on rumours that the company had missed payment to an SOE construction company, resulting in bonds trading down as much 2 ½ points before rebounding as the company subsequently denied the allegation. Coupon on the Kaisa 2017 bonds is due today, while that of the 2018 bonds is due tomorrow. Despite the uncertainty surrounding the coupon payments, the Kaisa complex continues to be actively traded.

All eyes and ears will be focused on the FOMC statement to be released early Thursday morning our time. With markets already discounting the removal of “patient” from the statement, I think we could be set up nicely for a bounce in risk assets (read equities and high yield), particularly if the statement is worded in such a way as to show that a June or September rate lift-off will still be largely data-dependent and far from decided.