Fixed Income Daily Market Update
PLEASE READ THE AUTHOR CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE Fixed Income Credit Commentary 7 Jun 2022 Glenn Ko, CFA 高志和 (852) 3657 6235 glennko@cmbi.com.hk Polly Ng 吴宝玲 (852) 3657 6234 pollyng@cmbi.com.hk James Wen 温展俊 (852) 3757 6291 jameswen@cmbi.com.hk CMBI Fixed Income fis@cmbi.com.hk 1 Rates surged overnight with 2y/5y US yields reached 2.74%/3.05% this morning yet selling interest was minimal against the prevailing strong deployment backdrop. LGFV/SOE space remained constructive and whether potentially further rate climbing may change the current 'asset shortage' momentum in the spaces remains to be seen. Asian Bond new issuance down significantly amid weak market sentiment. Assuming the current run-rate continues, i.e. a negative net issuance of USD30bn, this represents the first shrink in Asia ex-JP USD bond space since 2008. AACTEC: proposed A-share listing of subsidiary AAC Optics with listing application accepted by Shanghai Stock Exchange (SSE) on 6 Jun 2022. The IPO is still conditional upon approval of SSE and CSRC which can take 6 months to 1 year. We are cautious on long-end AACTEC. Trading desk comments交易台市场观点 Yesterday, Chinese IG space was strong. In SOE sector, HAOHUA tightened 10-15bps. TMT benchmark names tightened 5-7bps. MEITUA curve tightened as much as 15-20bps. Financial space was stable. Front-end ICBC papers saw firm buying interest from Fast money accounts. We saw better seller on NANYAN/CIMWLB. AMC names some inquiries on the front end. We saw INDOIS’27 at 101 level, compared to benchmark treasuries yield surging overnight. In LGFV, and tone was overall very constructive, and we saw most buying up to this point remained confined to quality names. Chinese HY property space was mixed amid weak sentiment. CSCHCN notes rebounded 2-7pts on Monday morning and ended at 1-3pts higher at EoD, after losing 12-20pts due to GRNLGR’s spillover effect given they are both state-backed peers. GRNLGR slightly up 1-2pts, after early votes were in favor of its consent solicitation to extend the maturity of its 6.75% due-25 June notes. CENCHI’ 22s and 23s curve was up 1-3 pts. On the flipside, AGILE/TPHL/ZHRPHK down 0.5-1pts. CMBI Credit Commentary Fixed Income Daily Market Update 固定收益部市场日报 7 Jun 2022 2 Last trading day’s Top Movers Top Performers Price Change Top Underperformers Price Change FTHDGR 10 7/8 01/09/23 11.9 2.6 AGILE 8 3/8 PERP 22.3 -2.2 FTHDGR 12 1/4 10/18/22 11.4 1.7 LOGPH 5 1/4 10/19/25 21.2 -1.4 MOLAND 11.95 03/04/24 19.6 1.6 SINHLD 8 1/2 01/24/22 2.6 -1.3 CENCHI 7.9 11/07/23 53.5 1.5 SHIMAO 4 3/4 07/03/22 20.3 -1.3 REDSUN 9.7 04/16/23 19.5 1.5 HRINTH 4 5/8 06/03/26 94.6 -1.3 Macro News Recap 宏观新闻回顾 Macro – U.S. stocks rebounded slightly, Treasury rallied overnight. The S&P (+0.31%), Nasdaq (+0.40%), and Dow (+0.05%) closed higher. Stocks in Asia traded mixed Tuesday as a jump in Treasury yields fueled concerns that rising borrowing costs will weigh on earnings and induce a recession. Treasury yields jumped sharply, with the 2/5/10/30 yield advancing to 2.73/3.03/3.04/3.19% respectively. Desk analyst comments分析员市场观点 Asian Bond new issuance down significantly amid weak market sentiment Sources: ICE BOFA, Bloomberg YTD, Asian IG and HY corps returned -8.2% and -18.7% under the backdrop of rising interest and default rates, fund outflow, geopolitical and regulatory risk. Asia HY is a notable underperformer within the EM space. YTD, the negative return of 18.7% of Asia HY corps is already largely in line with the negative return of 19.7% for the full year of 2021. As we have been arguing, supply and demand come hand in hand. A large new amount of new issuance can only come when the market sentiment is strong, i.e. the stronger market sentiment, the larger will be the investors’ appetite (demand) and the larger will be the issuance amount (supply), and vice versa. See chart below. 7 Jun 2022 3 Sources: Bloomberg, Dealogic, CMBI As investors are more risk-averse in view of the weak market sentiment, USD bond issuance in Asia ex-JP dropped 39% yoy to USD102.3bn in the first 5 month of 2022. The issuance amount is the lowest in the first 5 months of a calendar year since 2018, another year Asia ex JP bonds performance weakly. The drop of IG issuance (25% yoy to USD88.3bn) is more “moderate”. HY & non-rated (NR) issuance, on the other hand, posted a massive decline of 72% yoy to USD14.0bn. The HY & NR issuance for the first 5 months of 2022 is the lowest since 2016. A key driver for the drop in issuance from HY & NR is the substantially lower issuance from the HY & NR Chinese properties, which fell 91% yoy to USD1.6bn. Over the past 5 years, issuance from HY & NR Chinese properties accounted for an average of 36% of
