BONDS IN CONVERSATION : LICKING WOUNDS

24/07/2015 by

We now know that licking does help wounds and the best time to do that would be during the calm after the storm.

Bonds and equities stable for the week with the S&P 500 failing to break its record high in the current earnings season, China in a world of their own and commodities COLLAPSED, as Iran prepares to revive her fortunes and rebuild their economy to rival Saudi Arabia, reaching for that $800 bio GDP.

Deflation will continue to haunt our shadows with every single commodity down on the week except Cotton, most losing between 4 to 7% (Wheat), adding to the woes of commodity dependent EM markets as we see fresh lows again in the AUD & NZD dollar (6Y lows), Brazilian Real (12Y lows), Indonesian Rupiah (since 1998) and so on.

Lower yields has brought a sharp spike in bond issuance this week with activity picking up and increasing 33% over this time last year as stock buyback activity slowed globally to less than half the pace of early July and HY bond inflows trickled to a slow $82 mio (vs $1.2 bio).

All these are signs of a market licking wounds and waiting for the next move as cash levels continue to stay high and another Wallstreet titan, Bridgewater’s Ray Dalio coming out to change his view on China and warn that the Chinese slowdown will have far reaching repercussions.

That strikes as very true because while we have the West and Japan returning to economic health for their matured economies, the key to global growth remains in the hands of the developing markets.

We are sitting on an ugly perch now for EM economies and the MSCI EM Index that has few graces to save it especially if China sneezes for the rest to catch a cold in times when EM export growth is at 5 year lows along with their floundering currencies which makes imported inflation a big pain.

What we can expect is that there is bound to be contagion from China on global growth which will start showing up in the economic data to come which may not come in time for the Fed’s first hike.

Thus the best option would be to keep those bets small for that extra stimulus from China or anywhere, keep the gun powder dry and buy some insurance on illiquid exposures.

Even the safest options are not guaranteed, noting that Apple bonds are much cheaper these days as Bloomberg reported that “Overall, the company’s $30 billion of dollar-denominated bonds included in the Bank of America Merrill Lynch U.S. Corporate index on March 31 have lost 3.4 percent since then. That’s more than the 2.3 percent decline on comparably rated corporate debt.

So all those individual investors who wanted Apple bonds because, well, it was Apple, are now likely disappointed. It seems the tech company’s bonds are like one of its gadgets: they tend to lose value over time.” http://www.bloomberg.com/news/articles/2015-07-22/debt-traders-could-ve-bought-millions-of-apple-watches-with-loss

Apple is reportedly seeking to launch their inaugural GBP bonds.

In Asia, investors continue to flock to safety of bonds which is an easy sell after China’s stock market rout.

Good News

(Bloomberg) — Glorious Property Holdings Ltd.’s bonds rallied after the company settled a debt payment that had sparked legal action from a creditor.
>> Prices still 4-9% lower on the week.

Shashu papers also rallied back strongly (up some 10% on the week 86 to 94.5) as shareholders mull a takeover although the board change proposal was rejected by the HK High Court a few minutes ago.

Bad news for commodity names as Rolta and Vedenta underperform and we have Noble underperforming for another reason – yet another Iceberg report.

Singapore saw a quiet week in issuance, unsurprising for the lacklustre prospects of the SGD dollar. Only 1 issue was brought out that is apparently a select placement deal on Malaysia’s state owned Cagamas for their inaugural issue in SGD, a 3 year paper at 2.23% which is seen as a bit tight given that the MYR paper would yield at least 2.7% in SGD terms.

NOL bonds held on to their losses despite the company announcing that there will be no takeover with the NOL 4.4% 2019 indicating a level of 99 cts today compared to 101 last week. https://tradehaven.net/market/not-now-nol-bonds-or-stock/

Swiber bonds have edged higher as the company assuages investors with their small buybacks of their perps.

Overall, still a state of uneasy calm with liquidity lacking for most of the small names.

Good time to hibernate and chase comets like I have been doing – Comet Pan-STARRS which is supposed to be visible south of the Equator around this time. Was inspired by this Slate photo.