HALISTER1: HSBC Favors Front-End Dim Sum Sovereign Bonds, High-Grade Notes

HSBC Favors Front-End Dim Sum Sovereign Bonds, High-Grade Notes

(Bloomberg) -- As Fed, ECB and BOJ remain dovish, front-end CNH sovereign and high-grade bonds should outperform on search for yield as global rates stay low, HSBC analysts Ding Shiwen and Zhang Zhiming write in note today.
  • These bonds underperformed in Sept. because of rate volatility
  • Funding squeeze showed CNH pool is still too shallow to stand surge in demand; SDR inclusion is major step forward and will increase demand for CNH govt bonds, but there could be more pain during yuan internationalization process
  • Prefer 1-3-yr Chinese govt bonds; funding should stabilize over Oct.
    • Also short-end high grade bonds, which look attractive since yield widened 30-40 bps without significant changes in credit fundamentals
  • NOTE: 1-month CNH Hibor rate up 16 bps to 3.712% today
    • Yield of 10-yr onshore and offshore China govt bonds are 2.736% and 3.2022% respectively; yield of 1-yr onshore and offshore China govt bonds 2.213% and 3.1324%
    • China markets closed this week for national holidays
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Shiwen Ding (HSBC Securities Asia Ltd)
Zhiming Zhang (HSBC Holdings PLC)

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