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US Treasuries rallied across the curve again yesterday continuing the move post the Fed’s dovish rate hike. With the peak Fed funds rate at 4.90% for the May meeting, markets are pricing in a status quo in May and June, and a 53% chance of a 25bp rate cut in July. This differs from the FOMC’s expectations of another rate hike during the year. The US 2Y and 10Y yield fell over 7bps. US IG and HY CDS spreads widened 3.4bp and 15.9bp respectively. The S&P and Nasdaq were higher by 0.3% and 1.1% respectively. The banking sector continues to trade weaker, down by 0.7% yesterday.
European equity markets were trading mixed. European main CDS spreads were 4.4bp wider while Crossover spreads widened by 17.7bp. Turkey’s central bank kept rates steady at 8.5% after having cut rates by 50bp in February. The decision was in-line with its guidance in February. Asia ex-Japan CDS spreads widened by 2.1bp and Asian equity markets have opened with a negative bias this morning, down by 0.3%.
AIG raised $750mn via a 10Y bond at a yield of 5.186%, 35bp inside initial guidance of T+210bp. The senior unsecured bonds are rated Baa2/BBB+/BBB+. Proceeds will be used for general corporate purposes, including repurchasing AIG’s shares and the repayment of AIG’s debt.
Mapletree Pan Asia Commercial Trust (MPACT) raised S$150mn ($113mn) via a 7Y green bond at a yield of 4.25%, 25bp inside initial guidance of 4.5% area. The senior bonds are rated Baa1. MPACT Treasury is the issuer, and DBS Trustee, the trustee of MPACT, is the guarantor. Proceeds will be used to finance or refinance green projects.
Volkswagen raised €1.75bn via a two-tranche green deal. It raised
€1bn via a 3Y Green bond at a yield of 3.963%, 30bp inside the initial guidance of MS+115bp area. The bonds received orders over €3.35bn, 3.4x issue size. The new bonds are priced at a marginal new issue premium of 3.3bp to its existing 1.875% 2027s that yield 3.93%.
€750mn via a 6Y Green bond at a yield of 4.277%, 25bp inside the initial guidance of MS+160bp area. The bonds received orders over €2.95bn, 3.9x issue size. The new bonds are priced at a slight new issue premium of 5.7bp to its existing 3.25% 2030s that yield 4.22%.
The senior unsecured green bonds have expected ratings of A3/BBB+. Proceeds will be used to finance the eligible Green Portfolio as defined by VW‘s Green Finance Framework (GFF) dated October 2022.
UnitedHealth raised $6.5bn via a 4-tranche deal as seen in the table below.
The bonds have expected ratings of A3/A+/A. Proceeds will be used for general corporate purposes.
Bail-in debt refer to bonds which would be written off in a crisis, before depositors would lose any money. Thus, in the event of a failure or likely failure of a bank, shareholders and bondholders may be bailed-in (bear some of the burden of writing-off debt) to absorb the losses, instead of a bailout by taxpayers.
Commerzbank was upgraded by S&P due to its substantial and sustainable bail-in-able debt buffer.
On Wall Street Expecting Fed to Cut Rates
Todd Sohn, MD of technical strategy at Strategas Securities
“Rate cuts would actually be negative for the stock market. It’s cuts that get stocks and especially growth corners of the market in trouble… The ‘pause’ comment from Powell was interesting because it would suggest the end of the hiking cycle could be coming… then he dropped the ‘H-bomb’.. suggesting rates could go higher if needed depending on inflation”
Nicholas Colas, co-founder of DataTrek
“If banks tighten lending standards and financial conditions worsen as a result, by the time this shows up in the data it may be too late to avoid a recession even if the Fed cuts rates this year”
Adrianne Yamaki, founder of Strategic Wealth Capital
“Investors always try to be a step ahead. So it’s that anticipation that they’re pricing in”
On CreditSights Calling Banking Crisis Overblown, Recommending Regional Bank Bonds
Regional bank bonds are offering investors a “once-in-a-decade buying opportunity”… “bond market appears to be pricing a fundamental bank crisis that we’re increasingly doubtful actually exists in any real breadth”…. There “are good reasons to see any contagion risks as extremely limited due to the nature of the current ‘crisis’…. “there’s still plenty of equity capital in the system to absorb these ‘losses’ that don’t actually have to be realized”
On EU Regulators to Rethink Liquidity After Credit Suisse Unravelling
Citigroup CEO Jane Fraser
“It’s a complete game changer from what we’ve seen before. There were a couple of Tweets and then this thing went down much faster than has happened in history.”