FOCUS OF THE WEEK

Strong data opens the door for a ‘tighter for longer’ Fed. USD rates continue to adjust higher as investors digest the implications of firm economic data and its impact on the Fed’s policy. Following last week’s (ended 17 February) US CPI release, hawkish sentiment has been apparent in Fed speeches – for example, in an address last week, Dallas Fed president Logan stated that continued rate hikes for a longer period than previously anticipated were on the table, noting that the recent decline in goods prices reflect improvement in supply chain conditions, which is a source of limited comfort as “supply chains can’t recover twice”. Additional risks to goods prices in the coming month stem from Europe, which looks set to avert a recession, and a strong ongoing rebound from China. Robust economic activity has also been evidenced by strong retail sales and producer price data.

MARKET ACTIVITY & PIPELINE OBSERVATIONS

Asia ex-Japan USD Primary Market

Asia ex-Japan USD primary market continued to experience a lack of supply going into the middle of February. Issuers and investors alike looked to digest USD1.8b worth of prints across four tranches and make sense of US economic data. Hawkish Fed speeches drove rates higher with some buyers on dips, and sellers in the higher spread names.

Secondary Markets

Asia USD credit market saw relatively mixed performance following the sell-off in treasuries. The Chinese tech space saw some outperformance throughout the week with JD and BIDU being in focus. The Chinese property space saw a bit of a correction with some profit demand following the strong performance over the past several weeks.

Overall, Asia secondary IG indices traded wider with Asia iTraxx at 116 bps (+9 bps w/w). Asia secondary HY indices were c.57 bps wider with Barclays Asia HY (yield) at 13.24% (c.57 bps wider w/w)

SECTOR COMMENTARY

Sector Primer: Global Semiconductors – Betting on High Quality Chips

• We initiated coverage on seven semiconductor companies – TSMC, Intel, NVIDIA, Qualcomm, Broadcom, Micron, and SK Hynix.
• Despite near term headwinds, the semiconductor industry faces long term secular growth drivers. Semiconductor business is forecast to start recovering in 2H23 as supply chain inventories rebalance to healthier levels.
• IG corporates covered in our sector primer enjoy solid market positions, liquidity, and cash flow buffers, which may equip them to weather the current downcycle.
• Nevertheless, we note that the semiconductor industry is highly cyclical, capital-intensive, and exposed to geopolitical risks