Report Industry Investment Rating - Not provided in the given content Core Viewpoints - Asian fixed - rate IG credits tightened by 1 - 4bps this morning. Some bonds like VLLPM 29 were down, while PMBROV 30 recovered [3] - The FV of the new SUNHKC 29 is expected to be mid - 6% compared to an IPT of 6.75% [3][7] - Yuexiu REIT is gauging investor interest in USD/CNH bonds to refinance USD400mn YXREIT 2.65 02/02/26 [3][17] Summary by Directory Trading Desk Comments - Yesterday, new POHANG 31 - 36s/SKBTAM 29 tightened 3 - 5bps due to buying from Chinese onshore accounts, and new CSILTD Float 31 widened 1bp. Chinese IG credits tightened 1 - 3bps overall, with strong buying in beta names. Some bonds like EHICAR 26 - 27 were down, while NWDEVL/VDNWDL complex rose [2] - In Chinese properties, VNKRLE 27 - 29 were down, and Vanke proposed revised terms for its onshore bond. FUTLAN 28/FTLNHD 26 - 27 had mixed performance [2] - In JP space, SUMIBK/MUFG 5yr FRNs tightened. In SE Asia, BBLTB subs tightened, and GARUDA 31s surged. In the Middle East, FABUH 31s had block - size trading but closed unchanged. In AU space, CRNAU 29/PMBROV 30 were down [2] Macro News Recap - On Wednesday, S&P (-0.19%), Dow (-0.80%), and Nasdaq (-0.10%) were lower. US approved Nvidia H200 chip exports to China with conditions. UST yield was lower, with 2/5/10/30 - year yield at 3.53%/3.75%/4.18%/4.83% [6] Desk Analyst Comments - Sun Hung Kai proposes to issue a 3yr USD senior unsecured bond. The FV of the new SUNHKC 29 is seen as mid - 6% vs IPT at 6.75%, considering peer valuation and tenor differential [7] - Proceeds from the new issue will fund a tender offer for SUNHKC 5 09/07/26 and for general working capital. The tender price is at par, and SHK may prioritize allocation to tendering bondholders. Tender offer settlement depends on new bond issue settlement [8] - SHK is 74.6% - owned by Allied Group and ultimately by Lee and Lee Trust. It has businesses in credit, investment management, and fund management. In 1H25, it had a 43.5% yoy income increase, with credit and fund management contributing 62% of total income [9] - In 1H25, pre - tax profit increased, ROE rose, and leverage metrics improved. As of Jun'25, it had cash of HKD2.8bn and total debts of HKD11.0bn, with 52% due within one year [10] Offshore Asia New Issues - No offshore Asia new issues were priced today [14] - ANZ New Zealand (Int'l) London Branch and Sun Hung Kai are in the pipeline for new issues, with ANZ having 3yr/5yr options and Sun Hung Kai a 3yr bond at 6.75% [15] News and Market Color - Yesterday, 112 onshore credit bonds were issued with an amount of RMB107bn. Month - to - date, 645 credit bonds were issued, raising RMB517bn, a 20.3% yoy decrease [16] - Biocon's INR41.5bn QIP attracted 4x demand. CAS accepted USD580.629mn of CASHLD 4 Perp in a tender offer. Piramal Finance raised USD350mn. SJM accepted USD170.115mn of SJMHOL 4.5 01/27/2026 in a tender offer [16] - Vanke proposed revised terms for an onshore bond extension, and Yuexiu REIT is gauging investor interest in bonds for refinancing [16][17] Top Performers and Underperformers - Top performers include NWDEVL and GARUDA bonds with significant price increases, while top underperformers like CRNAU, ARAMCO, and PMBROV bonds had price drops [4]

Summary of Key Points from the Conference Call Industry Overview - **Equity Markets Performance**: In November, equity markets were generally flat, with NASDAQ declining by 1.5%, MSCI China down 2.4%, and MSCI EM down 2.5%. In contrast, Topix increased by 1.4% [2][12] - **Sector Performance**: Technology was the worst-performing sector, down 4.9%, while healthcare led with a gain of 7.7% [2][12] - **Commodities**: Silver was a standout performer, increasing by 17.2% [2][30] Market Sentiment - **Risk Sentiment**: The market exhibited a risk-off sentiment, indicated by a spike in the VIX and a further decline in the AAII Bulls-Bears indicator, which moved deeper into fear territory [4][12] Technicals and Issuance - **Debt Market Issuance**: There was a 2% decrease in DM IG gross issuance compared to the 2024 run rate, marking the first decline in six months. Flows into US IG and MBS funds outpaced those into HY funds [3][12] Currency Performance - **G10 Currencies**: The JPY was the worst-performing G10 currency, depreciating by 1.4% against the USD [2][12] Fixed Income Market Insights - **US Treasury Curve**: The US Treasury curve experienced a bull-steepening, with the UST 10Y yielding 4.01% [22][28] - **Credit Spreads**: Investment Grade (IG) spreads widened while High Yield (HY) spreads tightened, indicating a shift in credit market dynamics [3][28] Key Data Points - **Market Indicators**: The Market Sentiment Indicator stood at 16.4, indicating a neutral sentiment [12] - **Equity Returns**: The S&P 500 and Nasdaq-100 Index showed a slight recovery towards the end of the month after initial declines [7][12] Additional Insights - **Global Economic Context**: The report highlights the ongoing challenges in the global economy, including inflationary pressures and interest rate adjustments by central banks [12][22] - **Valuation Metrics**: The forward P/E ratios for various sectors indicate a mixed outlook, with technology and healthcare showing higher valuations compared to traditional sectors like energy and financials [26][27] This summary encapsulates the critical insights from the conference call, focusing on market performance, sentiment, technicals, and key economic indicators.

Group 1 - The US labor market is showing signs of weakness, which is expected to lead to a Federal Reserve rate cut in the near future [1][2] - Inflation is anticipated to remain stubborn, complicating the Fed's decision-making process and impacting financial markets [3] - US Treasuries are projected to have their best year in five years, although the back end of the yield curve is trading higher due to inflation concerns [3][4] Group 2 - There are growing concerns about the independence and credibility of the Federal Reserve, particularly with potential political influences affecting monetary policy [5][6] - The bond market has reacted negatively to increased speculation about the next Fed chair, indicating investor apprehension regarding Fed independence [6][7] - The credibility of the new Fed chair, particularly if Kevin Hassett is appointed, is questioned, as it may affect consensus within the committee [7][8]

AI Industry Developments - Apple is replacing its head of AI with a veteran from Microsoft and Google, who previously led engineering on Gemini [2] - Sam Altman of OpenAI has initiated a "code red" effort to enhance ChatGPT, prioritizing these improvements over other investments in health, shopping, and advertising [3] - French AI startup Mistral has launched a new suite of models, including a large model claimed to be the world's best open-weight multimodal and multilingual [4] Market Trends and Economic Indicators - Japan's 10-year government bond yield has reached its highest level since 2008, while the 30-year yield hit an all-time high of 3.411% [5] - The Bank of Japan's hawkish remarks have increased expectations for an interest rate hike, impacting the yen carry trade and US asset valuations [6][7] - Upcoming retail earnings reports, including Macy's expected revenue of approximately $4.53 billion for Q3, indicate a potential 3-4% year-over-year decline [8] Consumer Spending Insights - American Eagle's stock rose over 10% after issuing positive holiday guidance and raising its full-year forecast [10] - Services PMI data is anticipated to show expansion, with expectations for the ISM reading around 52, indicating growth in the services sector [12] - Key metrics to watch include new orders, employment, and input prices, which are critical for assessing inflationary pressures [13]

Summary of U.S. Fixed Income Markets 2026 Outlook Industry Overview - **Industry**: U.S. Fixed Income Markets - **Company**: J.P. Morgan Securities LLC Key Economic Forecasts - **Real GDP Growth**: Projected at 1.8% for 2026, consistent with 2025 pace [5][19] - **Core PCE Inflation**: Expected to moderate slightly to 2.7% [19][28] - **Unemployment Rate**: Anticipated to remain stable at 4.3% [19][25] Interest Rate Expectations - **Federal Reserve Actions**: Anticipated 50 basis points (bp) cuts in January and April 2026 [5][19] - **Treasury Yields**: - 10-year yields expected to rise to 4.25% in Q2 2026 and 4.35% by Q4 2026 [6][19] - 2-year yields projected to remain around 3.51% through mid-year, rising to 3.85% by year-end [18][19] Fixed Income Market Dynamics - **Supply/Demand Imbalance**: Improvement expected in the Treasury market, but spread market technicals may worsen [19][41] - **High-Grade Corporate Spreads**: Forecasted to widen by 15bp to 110bp by year-end 2026 due to heavy supply and weakening credit fundamentals [19][44] - **High-Yield Bond Spreads**: Expected to widen by 30bp to 375bp, with default rates projected at 1.75% [15][19] Sector-Specific Insights - **Agency MBS**: Anticipated to provide modest excess returns despite a projected 5bp widening in OAS [19][28] - **ABS Market**: Expected to remain resilient with stable credit and slightly tighter spreads [11][12] - **CLOs**: Targeting new issue spreads to widen to 130bp, driven by waning exuberance and late-cycle defensiveness [15][46] Risks and Considerations - **Labor Market Risks**: Elevated risks of recession due to cyclical weakening in the labor market [29][30] - **Inflation Risks**: Core inflation expected to remain sticky, complicating the Fed's easing strategy [28][30] - **Regulatory Risks**: Potential impacts from financial deregulation and changes in capital frameworks [38][39] Technical Analysis - **Yield Curve**: Expected to remain range-bound with risks of flattening as the Fed goes on hold [6][19] - **Volatility**: Anticipated decline in shorter-expiry volatility, with longer-expiry volatility expected to increase [37][42] Conclusion - The outlook for the U.S. Fixed Income Markets in 2026 suggests a complex interplay of growth, inflation, and interest rate dynamics, with a focus on maintaining a defensive portfolio amidst macroeconomic uncertainties. The anticipated changes in yields and spreads across various sectors highlight the need for strategic positioning in the evolving market landscape.

Economic Overview - The recent Consumer Price Index (CPI) report showed inflation cooler than expected, leading to a slight dip in the 10-year yield, which is currently hovering around the key 4% level [1][3][9] - On a relative basis, the CPI came in below expectations, which was positively received by the market, resulting in a rally in treasuries [2][3] Inflation Insights - Despite the positive relative performance, inflation remains above the Federal Reserve's 2% target, indicating ongoing concerns [3][4] - The CPI report revealed mixed trends, with some components like owner's equivalent rent decreasing, while goods prices, particularly in apparel, are starting to rise, potentially due to tariff impacts [7][8] Interest Rate Expectations - There is an expectation for a 25 basis point rate cut, with the likelihood of this occurring next week or possibly in December, depending on economic developments [4][6] Fixed Income Opportunities - The fixed income market presents attractive opportunities, particularly in the municipal bond sector, which offers tax-exempt interest income and generally high credit quality [10][11] - The current yield environment, especially after recent years, is considered attractive for investors seeking income options [9][10]

Group 1 - The sentiment in the fixed income markets remains bullish, indicating a positive outlook for investments in this sector [2] - Issuance in the fixed income markets is robust, suggesting strong demand for new debt securities [2] - Spreads are tight, prompting a defensive investment strategy while seeking opportunistic investments [2]

Core Viewpoint - The discussion highlights the current investment landscape, focusing on fixed income and equities, with an emphasis on the potential for longer duration investments and opportunities in the equity market despite economic slowdowns. Fixed Income - The securitized sector is trading cheaply, and there is an expectation for duration extension as the market enters a cycle of easing [2][6] - Investors are likely to seek longer duration elements such as mortgage-backed securities and asset-backed securities [4][6] - The JAA ETF, which provides AAA collateralized loan obligation (CLO) exposure, is highlighted as a safe investment with a good spread, currently crossing $25 billion in assets [6] - CLOs are considered safer than corporate bonds if appropriately rated, with improvements in rating accuracy since the 2008 financial crisis [8] - Yield expectations range from mid-single to high-single digit yields, with specific mention of 7% yields for triple B rated investments [10][12] Equities - There are significant opportunities in the equity market, particularly in companies that have been undervalued or pushed to high valuations [13][15] - The recent performance of Oracle, which saw a 40% increase in a week, exemplifies the potential for substantial gains in large-cap stocks [14] - Investors are focusing on innovative sectors that can navigate geopolitical tensions, with strong interest in healthcare and technology [15][16] - Small and mid-cap stocks are viewed as undervalued and have the potential to deliver significant returns despite a slowing economy [17]

Summary of Key Points from the Conference Call Industry Overview - The report covers the global financial markets, focusing on equity and fixed income performance, particularly in the US and developed markets [2][3][10]. Core Insights and Arguments 1. **Equity Performance**: - US equities demonstrated strength with the S&P 500 increasing by 2.3% in July 2025. Technology sector led with a 5.1% rise, while consumer staples and healthcare sectors lagged, declining by 3.5% and 3.7% respectively [2][10]. 2. **Fixed Income Trends**: - Developed Market (DM) high yield (HY) and investment grade (IG) gross issuance fell by 9% and 5% year-over-year, respectively. This indicates a tightening in credit spreads across US and European indices [3][10]. - Record foreign demand for US long-term securities was noted, totaling approximately $319 billion in May 2025 [3]. 3. **Market Sentiment**: - The Market Sentiment Indicator (MSI) reached its highest level since November 2024 but has since declined, indicating a shift to a risk-off environment [4][5][10]. 4. **Currency Movements**: - The US dollar outperformed G10 currencies, with the DXY index rising by 3.3%. Brent crude oil prices increased by 8.1% [2][10]. 5. **Sector Performance**: - In July 2025, the technology sector outperformed, while consumer staples and healthcare sectors faced declines. The overall sentiment in the market shifted towards risk aversion [10][24]. Additional Important Insights 1. **Technical Analysis**: - The report highlights a significant drop in DM HY and IG gross issuance compared to previous years, suggesting a cautious approach from investors [3][10]. 2. **Equity Market Valuations**: - The report provides insights into equity market valuations, with the S&P 500 showing a price-to-earnings (P/E) ratio of 25.0, indicating a relatively high valuation compared to historical averages [22][26]. 3. **Commodities and Precious Metals**: - The report notes fluctuations in commodity prices, with WTI crude oil at $69, reflecting a 7.3% increase, while gold prices decreased by 1.7% [21][29]. 4. **Global Economic Indicators**: - The report discusses the implications of macroeconomic data on market trends, emphasizing the importance of monitoring global economic indicators for future investment strategies [10][20]. 5. **Investment Strategy Recommendations**: - The report suggests a cautious investment approach in light of the current market conditions, particularly in sectors that are underperforming [10][11]. This summary encapsulates the key points from the conference call, providing a comprehensive overview of the current state of the financial markets and investment outlook.