ASIAN MORNING BUZZ: Improved sentiments overnight could give supply a big boost

Headlines (20-Mar-2025)

** BoC Luxembourg and Muthoot Finance leads slower primary session

** Supportive backdrop could be the catalyst for issuers to pull the trigger today

** US stocks edged higher as Fed's narrative soothed investor's nerves

Supply in the APAC USD primary market was dominated by Chinese issuers on Wednesday, comprising Bank of China Luxembourg Branch's US$500m 3-year FRN, along with two LGFVs in the shape of Foshan Gaoming Construction Investment Group and Changchun Urban Development & Investment Holding Group.

BoC Luxembourg's transaction followed 3-year FRNs placed by peers BoC Panama branch last week and BoC Sydney branch last month. All three deals were placed in a similar fashion: 3-year FRN format, same starting IPG of SOFR+105bps area and the same landing spread of SOFR+50bps. As such, we saw NICs at 0bps (zero) at reoffer this time around.

That said, appetite for the various branches differed as illustrated by the orderbook size, with BoC Panama branch garnering a final order book of >US$1.4bn versus BoC Sydney Branch's orderbook of >US$2.5bn. Meanwhile, BoC Luxembourg's transaction had commanded an orderbook of >US$2.3bn at the last update we received when FPG was announced, while we await confirmation of the final book size at reoffer.

The only non-Chinese issuance yesterday was provided by Indian NBFC Muthoot Finance, who successfully tapped their existing US$400m April 2029s for an additional US$250m, taking the total outstanding to US$650m. The transaction priced at a reopening yield of 6.651% and price of 99.125, which implied a pick-up of ca. 15bps, based on where the line was marked on Wednesday morning (6.50%).

Looking ahead to Thursday's primary prospects, where the APAC US$ pipeline continues to remain healthy and the relatively positive backdrop underpinned by the Fed overnight could provide a springboard for regional issuers to hit the market today.

Fed holds rates steady amid increasing uncertainty around the economic outlook

As expected, the Fed refrained from cutting interest rates this time around, as the committee preferred to bide its time while they get a handle on the ramifications of President Trump’s tariff and immigration policies.

At the same time, those ramifications caused the Fed to adjust its views on the state of the economy and its strategy for interest rates going forward.

The Fed held its benchmark rate at 4.25%-4.50% and maintained a median rate cut projection at 50 bps for 2025. They also mentioned that they would further slow the pace at which its balance sheet is reduced.

The accompanying statement said employment has stabilized at low levels, labour conditions are solid, but inflation remains elevated.

According to our IGM US colleague, the stagflationary revision to economic forecasts reveals where their (the Fed) concern lies. While the language was fully balanced, internal deliberations showed that almost the entire board saw current economic uncertainties as negative risks to growth. Before this meeting, the consensus view was that (due to sticky inflation) a high bar had been set to resume cutting rates. After today, it seemed like that view might have changed.

Meanwhile, at the press conference the key takeaway was that "transitory" inflation is once again the Fed's base case. Reading between the lines, Powell appeared more worried about growth and employment than letting on while searching for any excuse to ‘look through’ tariff inflation. All of this suggests the bar for additional rate cuts is now lower than before the meeting.

A more detailed read on the key takeaways can be sourced here.

Stocks rose while bond yields fell as Fed calms the market

As for the market's reaction to the Fed meeting, it seemed like investors' nerves were soothed.

The three major US indices all closed in the green, with the Dow, S&P 500 and Nasdaq advancing 0.92%, 1.08% and 1.41% respectively on Wednesday. The magnitude of the rally in stocks was also the biggest for any Fed day since July last year, according to Bloomberg.

The rally in stocks also dismissed the fact that growth expectations this year were being revised lower (according to the updated Fed forecast), which could be viewed as bearish for equities. That said, perhaps most of it has already been priced in with the correction seen in the last couple of weeks.

Elsewhere, bond yields declined across the board with the 10-year UST yield closing at 4.243%, a decline of 4.03bp on the day. Moves in the 2-year were the most pronounced though with a 6.75bp decline and renewed close below 4% at 3.972%. Elsewhere, the long 30-year bond yield dipped 3.45bp to close at 4.551%.

Looking ahead to today's session, where over in NY hours markets will be looking at US Initial Jobless Claims and Continuing Claims for an update on labour market health. Markets should also be interested in the 4Q Current Account Balance (forecast of -330.0bn vs prior of -310.9bn), given President Trump’s rage against countries with significant surpluses against the US and targeting them for reciprocal tariffs.

The Philadelphia Fed Business Outlook will also provide an added picture to overall manufacturing sector performance given that March Empire Manufacturing data fell sharply from prior 5.7 to a negative -20.

For a more comprehensive look at Wednesday’s price action and a look ahead to Thursday’s key event risk for global markets, see IGM's Asia Breakfast Briefing.

Source: IHS Markit iTraxx & Bloomberg

Snapshot of APAC USD, EUR, CNH, CNY, HKD, SGD, AUD & NZD issues priced on 19th Mar 2025. Click on the links for the most recent update:

US Credit

It has been more than three years since we’ve seen a high-grade corporate borrower come to market on “Fed Day” and today was no different, resulting in the fourth “zero” issuance day of the year – there 23 such days last year, 32 the year before and 38 in 2022. That left ex-SSA issuance for the week at $27.05bln. While more than enough to top the lowest weekly estimate of $22bln, though close, it’s still not enough to surpass the average prediction of $30bln. But there’s still tomorrow, and an outside chance of some activity on Friday, though don’t count on it. Right now, there are at least five borrowers who have recently wrapped up investor calls, although the largest potential deal - LG Energy Solutions’ (5-pt offering) - investor meetings don’t wrap up until Friday, setting it up for next week. For more colour, see IGM's THE ENDGAME.

European Credit

European primary bond activity slowed considerably on Wednesday as attention appeared to turn to the looming FOMC verdict. Just six issuers tapped the euro market in the end for a combined EUR4.55bn, with the non-covered FIG asset class accounting for four of the day’s six euro trades and EUR3.05bn of the volume. The remainder came from one SSA issuer and a singular HY name which priced EUR750m apiece. Excluding HY issuance the weekly single currency total is now at EUR19.75bn versus the average supply estimate of EUR28.5bn, with a thin pipeline suggesting we may struggle to meet that. See the EUROPEAN DAILY CLOSE for more details.

Source: Bloomberg and IGM