Fixed Income Monthly January 2022




UOBKH Fixed Income Monthly Jan22
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We have been anticipating a stronger USD and higher US interest rate scenario for some time. An easing liquidity environment in China could reduce company financial stress but does not swing our stance into an outright bullish position. Our investment thesis continues to be conservative until further notice.


We have been anticipating a stronger USD and higher US interest rate scenario for some time. An easing liquidity environment in China could reduce company financial stress but does not swing our stance into an outright bullish position. Our investment thesis continues to be conservative until further notice.


We expect conditions in the China property sector would continue to be very volatile. Investors should continue to be extremely picky here (refer to recommendation list on page 2) and only allocate to issuers such as China Vanke and China Overseas Land, which have the ability to withstand the higher uncertain environment.



REVIEW OF MACRO ENVIRONMENT


The 2yr US Treasury (UST) yield continued to rise (widen) in response to the US Fed’s more hawkish stance. The Fed’s own projections forecast at least 3 hikes in 2022. Furthermore, asset purchase reductions will be increased to USD30bn a month. China Govt Bond (CGB) yields continued to lower (tighten) across its yield curve. The market increasingly expects PBOC liquidity measures to be more dovish to ease funding pressure in select parts of the Chinese economy.


ASIAN HIGH YIELD (HY) HIGHLIGHTS


Select China Property HY Bond Prices Volatility was seen in the China property sector again after a short-lived relief in the prior month. Default-risk concerns rose in the month as specific company headlines on liquidity pressure and debt negotiations increased. Guangzhou R&F (GZRFPR) and Shimao’s (SHIMAO) bonds experienced more pronounced pressure during the month with -10 to -25 points of price downside seen in some of their bonds.


Not all was lower in the China property sector, as bonds from issuers such as Yuzhou, Times China, Logan, Powerlong, among others were indicatively 2-5 points higher during the month. A relief rally was also seen in Indonesia HY such as Medco Energi.


In the Asia EM space, more material price downside was seen in Sri Lanka as the government grapples with a deepening financial and humanitarian crisis.


ASIAN INVESTMENT GRADE (IG) HIGHLIGHTS


Select Asia IG Bond Prices Long-dated bonds from Thai Oil (TOPTB), Alibaba (BABA), Temasek (TEMASE) and sovereign issuers such as China and Korea sold-off. The market has been reducing long duration risk for some time in anticipation of the Fed’s more hawkish stance.


Bonds from China Huarong and select Asia EM sovereign and quasi-sovereign issuers such as Indonesia, Philippines, Pertamina, Inalum saw higher prices during the month.


In the IG/crossover China property sector, select bonds from Longfor and Country Garden also saw higher prices.