Advanced Theory & Practice of Bonds

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1-2 December 2021

Two-day immersive course on bonds designed for private bankers and advisors. 90% funding* available to eligible company-sponsored candidates.

S&P gained 0.3% while the Nasdaq rose 0.4% with the Fed taking a dovish stance. The Fed kept rates unchanged with the dot plot seeing a change – 7 officials see a rate hike in 2023 vs. 5 last December while 4 officials see a hike possibility next year vs. none in December. While the FOMC bettered its expectations for growth, unemployment and inflation, the recent inflation pick-up was termed ‘transient’ by Fed chair Jay Powell. US 10Y Treasury yields have continued their march higher today by 6bp to 1.68%. US IG CDS spreads were 1.1bp tighter and HY was 5.9bp tighter. EU main CDS spreads were 0.6bp wider and crossover spreads widened 2.1bp. Asian equity markets have opened higher 0.8%-1% and Asia ex-Japan CDS spreads are tighter 0.1bp. Asian primary markets are having another busy day with seven new dollar deals today.

Bond Traders’ Masterclass | 25% Discount on a Bundle of Five Sessions

Keen to learn bond market fundamentals from industry professionals? Sign up for our Bond Traders’ Masterclass that consists of five modules starting on March 24. Avail a 25% discount on a bundle of five sessions!

The modules are specially curated for private bond investors and wealth managers to develop a strong fundamental and practical understanding of bonds. Given the ultra-low interest rate environment, flurry of new bond deals particularly from junk-rated issuers and tightening credit spreads, it is now more important than ever for investors to understand bond valuation, portfolio construction and new bond issues to help them get better return for risk. The sessions will be conducted by debt capital market bankers who have previously worked at premier global banks such as Credit Suisse, Citi and Standard Chartered.

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New Bond Issues

  • Cliffton/Delhi Int’l Airport $ green bond at 6.5% area; books over $600mn
  • Krung Thai Bank $ AT1 at 4.85% area
  • Clean Renewable Power/Hero Future Energies $ 6Y green amortiser (WAL 5.25yr) at 4.75% area
  • Toyota Motors $ 3Y/5Y/10Y sustainability bond at T+50bp/T+62.5bp/T+80bp areas
  • Laos $ 5Y bond at 11% area
  • Zhejiang Geely $ 3Y at T+160bp area
  • Sumitomo Mitsui Trust $ 3Y/5Y at T+75-80bp/100bp area

New Bond Issues 18 Mar

Shuifa Group raised $200mn via a 3Y green bond at a yield of 4%, 25bp inside initial guidance of 4.25% area. The bonds have expected ratings of Baa1 by Moody’s and received orders over $700mn, 3.5x issue size. The bonds will be issued by wholly-owned subsidiary Shuifa International Holdings (BVI) and guaranteed by Shuifa Group. Proceeds will be used for project construction and debt refinancing in accordance with the group’s green bond framework.

Helenbergh China Holdings raised $200mn via a 2Y bond at a yield of 11%, 50bp inside initial guidance of 11.5% area. The bonds have expected ratings of B3 by Moody’s. The property developer plans to use the proceeds for offshore debt refinancing.

New Bond Pipeline

  • Pakistan sovereign bond
  • Naver $ sustainability bond
  • Nickel Mines $ 3NC2 bond
  • Merck $10.5bn offering
  • Meinian Onehealth Healthcare $ bond
  • JSW Steel $ bond

 

Rating Changes

Term of the Day

Sukuk

A Sukuk is a sharia-compliant fixed income instrument that essentially works similar to bonds. In a Sukuk, key differentiators vs. conventional bonds are:

  • Investors share partial ownership of an asset rather than it being a debt obligation by the issuer
  • The pricing is based on the underlying value of assets rather than credit worthiness
  • The holder receives a share of underlying profits rather than interest payments (considered ‘riba’)

Sharia compliance broadly implies that any profits derived from these funding arrangements must be derived from commercial risk-taking and trading only; that interest income is prohibited on lending activities and; that the assets must be halal. Saudi mall operator Arabian Centres is planning a $500mn sukuk issuance over the coming days/weeks.

 

Talking Heads

On Powell keeping the volatile bond market calm and the stock market rallying

Jerome Powell, Federal Reserve chairman

“What I’m telling you is the stance of monetary policy we have today, we think is appropriate,” Powell said. “Until we give a signal, you can assume we’re not there yet,” he said. “As we approach it, well in advance, well in advance, we will give a signal that yes, we’re on a path to possibly achieve that, to consider tapering.”

Jim Caron, head of global macro strategy at Morgan Stanley Investment Management

“I thought this was one of the best press conferences we’ve seen from Powell,” said Caron.“He got up there and kind of rocked it, and said: ‘This is what we’re doing. This is what’s going on. I said patient and I meant it,’” Caron said. “Wow, mission accomplished.” “The last time he spoke 10-year yields were beginning to rise to 1.50%,” Caron said. “Everybody expected him to talk things down, and he didn’t do it.”

James McCann, senior economist at Aberdeen Standard Investments

“I think the market was looking at it for a few directions, just trying to understand to the extent of which the Fed would upgrade its view, based on an additional $2 trillion in stimulus,” said McCann. “What the Fed has not done is not blink.”

Greg Faranello, head of U.S. rates at Amerivet Securities

“He’s a maestro himself. He is because of what he’s managed to say… ‘we want inflation higher. We want higher growth…we want all these things and we want rates low too,’” Faranello said. “Without doing anything — think about it — he got it.”

Michael Arone, chief investment strategist at State Street Global Advisors

“The biggest thing that Powell has said is the Fed is not fearful of the inflation boogeyman,” Arone said. “He described inflation this year as ‘transient’ not transitory as everyone is saying. And then he sees it falling,” Arone added. “As a result you’re seeing rates fall and the Nasdaq shoot up.”

On sovereign rating cuts coming to those who ignore climate change

In a statement by Matthew Agarwala, environmental economist at Cambridge’s Bennett Institute for Public Policy

“As climate change batters national economies, debts will become harder and more expensive to service,” Agarwala said. “Markets need credible, digestible information on how climate change translates into material risk.”

Moritz Kraemer, S&P Global Ratings’ former chief sovereign ratings officer

“Investors are holding government bonds with ever-longer maturities,” Mr Kraemer said. “The agencies’ short time horizon increasingly leaves investors without a reliable yardstick for credit exposures that can extend up to a hundred years.”

On China’s stock volatility contrasting with calm in bond markets – Jackson Wong, asset management director at Amber Hill Capital Ltd

“The expensive valuations of stocks has made traders extremely sensitive to bad news these days,” said Wong. “Also, lots of recent government measures do not affect bond market that much, such as the clampdown on technology giants, but those hurt heavyweight stocks directly.”

On Brazil kicking off interest rate hikes more aggressively than expected

Luciano Rostagno, chief strategist at Mizuho Bank

“Frontloading the policy normalization process is a stronger and quicker way of stabilizing financial markets, supporting the real and minimizing the risk of inflation ending the year above target,” said Rostagno.

According to Brazil Monetary Policy Committee (Copom)

“For the next meeting, unless there is a significant change in inflation projections or in the balance of risks, the Committee foresees the continuation of the partial normalization process with another adjustment, of the same magnitude, in the degree of monetary stimulus,” they said.

On Greece selling first 30-year bond since 2008 financial crisis

Asif Sherani, head of DCM syndicate Emea at HSBC

“The 30-year is a step back into normality in terms of the global government bond markets,” said Sherani.

Konstantin Veit, portfolio manager at Pimco
“All boats have been lifted by the ECB,” said Veit. “There has been some upward pressure on yields but it is not obvious that all fundamentals pushing yields down have disappeared at this stage.”

Reza Moghadam, chief economic adviser at Morgan Stanley

“It really shows the level of support from the ECB that is enabling governments to issue at the moment on favourable terms.” “After last week’s ECB meeting there is more firepower on the way, so it is a perfect time for Greece to issue,” said Moghadam.

Francesco Maria Di Bella, fixed-income strategist at UniCredit

“Greek bonds have generally recovered from the losses we have seen in the financial crisis and the eurozone sovereign crisis,” he said.

Sergey Sudakov, head of DCM, central and eastern Europe, at BNP Paribas
“Essentially we have just been waiting for a bit of stability and we got that this week. Greece is by no means unique and has been impacted by recent rates moves alongside other sovereigns,” said Sudakov.

 

Top Gainers & Losers – 18-Mar-21*

BondEvalue Gainer Losers 18 Mar

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