US 10Y Treasury yields were flat at 3.46%. The Peak Fed Funds Rate (Term of the day, explained below) currently stands at 4.43% for the FOMC’s March 2023 meeting. This jumped 40bp over the last week after the inflation release where CPI and Core CPI accelerated by 8.3% and 6.3%, higher than forecasts of 8.1% and 6.3% respectively.

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The Effective Fed Funds Rate currently stands at 2.33%, implying another ~200bp in rate hikes over the next six months. As of Friday, markets were pricing in an 85% probability of a 75bp hike at Wednesday’s FOMC meeting with an 18% chance of a 100bp rate hike. US credit markets saw IG CDS spreads tighten by 0.2bp and US HY spreads widening 26.3bp. US equity markets ended lower on Friday with the S&P and Nasdaq down 0.7% and 0.9% respectively.

European equity markets fell, and the credit markets saw EU Main CDS spreads widen 3.7bp and Crossover spreads move 14.7bp higher. Russia cut its benchmark rate by 50bp to 7.5%, its smallest rate cut in the current cycle. Asia ex-Japan CDS spreads widened 4.8bp and Asian equity markets have opened broadly negative today, down ~0.5-1%. 

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New Bond Issues

New Bond Issues 19 Sep 22

Shaoxing Shangyu State-owned Capital Investment and Operation raised $300mn via a 3Y bond at a yield of 5.2%, 40bp inside initial guidance of 5.6% area. The bonds are rated BBB- by Fitch.

Hongkong Xiangyu Investment (XMXYG) raised $300mn via a 3Y bond at a yield of 5.7%, 40bp inside initial guidance of 6.1% area. The senior unsecured bonds have expected ratings of BBB+. Proceeds will be used for repayment of existing offshore indebtedness.


New Bonds Pipeline

  • Aozora Bank hires for $ 3Y Green bond
  • Tianjin Binhai New Area Construction & Investment hires for $ bond
  • NH Investment hires for $ 3Y and/or 5Y Green bond


Rating Changes

Term of the Day

Peak Fed Funds Rate

Peak Fed Funds Rate refers to the highest Fed Funds rate as seen across all the upcoming Federal Reserve’s FOMC meeting dates. This rate is a calculation that is based on the Fed Funds futures contracts. The peak rate helps market participants calculate how many rate hikes are being priced-in by the markets as compared to the effective fed funds rate (EFFR). The EFFR is published daily by the NY Fed Reserve and gives an idea of the cost of borrowing federal funds by banks on an overnight basis. This rate is effectively within the Fed Funds target range, which the FOMC sets on every meeting date.


Talking Heads

On Bond Traders’ Fortunes Hinging on Where Fed’s Rate Comes to Rest

Michael Contopoulos, director of fixed income at Richard Bernstein Advisors

“The September FOMC policy action certainly matters, but it’s a little bit of not seeing the forest for the trees… From our perspective, as investors who really focus on the next 6 to 12 to 18 months, it’s less about one meeting but more about the cumulative. We expect Powell will also give another hawkish message.”

George Goncalves, head of macro strategy at MUFG

“The shorts are in control, and the market led by the two-year will follow the magnetic pull of a higher terminal rate… The focus at the moment — via the dots — is how far can the Fed push this? The only viable outlet for the Fed is tighter financial conditions, and this is a meeting where they should be happy the market is pricing in a more aggressive policy path”.

On Inflation Leaving Investors With Nowhere to Hide

Nikolai Roussanov, a finance professor at the Wharton School of the University of Pennsylvania

“The first half of the year when energy and food inflation were rising faster than core, commodities did great and looked like a great hedge against inflation…But when energy prices started falling, we’ve seen that correlation reverse and commodities broadly are not doing so well.”

Man Group portfolio manager Teun Draaisma

“The whole market and the whole world is navigating from this period of high and rising inflation, that we’ve been in, to a period of still high, but lower inflation…We’re on the cusp of that change.”

Peter Chatwell, head of global macro strategies trading at Mizuho International Plc.
“With core inflation very strong this implies that aggressive monetary tightening will be delivered,…This should reduce demand in the near term, and take most asset prices lower.”

On the Singapore Dollar Becoming Rare Global Winner as MAS Tightens

Divya Devesh, head of Asean and South-Asia FX research at Standard Chartered Bank SG Ltd. in Singapore

“Despite the MAS tightening, USD/SGD has continued to inch higher amidst a broad USD rally supported by a hawkish Fed, geopolitical tensions and a slowdown in China’s growth.”


Top Gainers & Losers – 19-September-22*

BondEvalue Gainer Losers 19 Sep 22

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