FOCUS OF THE WEEK

This week’s US CPI release was a hiccup to the disinflationary theme that seems to be playing out. Although month-on-month measures were in line with consensus, greater emphasis is placed on the year-on-year figure which came in at 6.4%, above the consensus of 6.2%. (The y/y CPI faces less distortions from tweaks in seasonal adjustments.) Breaking January’s CPI into its components indicates that although inflation appears to be trending lower, services inflation is proving sticky. Meanwhile, the Atlanta Fed’s core CPI excluding shelter measure rose to 3.5% on a three-month annualised basis, up from a cycle low of 3.1% in the preceding month. The upshot is that it is too early to declare that the inflation battle has been won.

We are not convinced that the terminal rate pricing should be materially higher than the 5.25% guided in December. While firm payrolls and the latest CPI print increase the odds that the Fed may have to deliver more hikes than initially anticipated, we maintain that the bulk of tightening is behind us, and the risks of overtightening would now be weighing on the Fed. Policy tightening works with a lag and worries are gradually shifting away from inflation and to growth concerns. Although the US economy seems to be holding up thus far, considering risks of policy errors, it would make more sense for the Fed to hold rates for longer to gauge the lagged impact of monetary policy on the real economy, rather than to extend the hiking cycle.

MARKET ACTIVITY & PIPELINE OBSERVATIONS

Asia ex-Japan USD Primary Market

Asia ex-Japan USD primary market remained muted following the Lunar New Year as issuers and investors alike further digested the nonfarm payroll and rates implications last week (ended 10 February) with just USD2.3b worth of prints across three tranches.

Following the strong performance of Wanda’s HY bond price earlier in January, Wanda Properties Global again came to market to print a USD300m size, at a longer 3Y maturity. This time, the deal size was smaller, whilst also tightening by a lesser 12.5 bps from IPG.

Korea Development Bank (KDB) also came to market, printing dual-tranche 5 and 10Y notes. Each tranche printed USD1b. Strong primary deal momentum continued for high grade trades, allowing KDB to tighten FPG significantly from IPG (4 5bps for 5Y and 40 bps for 10Y). This allowed KDB to finally price their 5Y tranche with -10 bps NIC and 10Y tranche with -5 bps NIC. Orderbooks were also 3.7x and 3x oversubscribed for the 5Y and 10Y tranches respectively.

ISSUER COMMENTARY

Adani Group – Founder signals governance changes, touts cash reserves

• The Adani Group said it has adequate cash reserves and its listed companies can refinance their debts. The Group’s gross debt stood at INR2.26t (c.USD27b) at the end of September, which the Group forecasts to remain steady through to the end of March. Cash balances increased to INR316.5b (c.USD4b) in December.

Thomson Medical Group – Update on 1HFY23 results: Strong organic growth 

• Thomson Medical Group’s results for 1HFY23 featured strong operating metrics underpinned by organic revenue growth in both its core hospital and specialised services segments.

NagaCorp Limited – Refinancing risks on the horizon

• About 17 months remain until maturity of the issuer’s outstanding USD notes due July 2024.