Advanced Theory & Practice of Bonds

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1-2 December 2021

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US equities ended almost flat with the S&P and Nasdaq up less than 0.1% each. The Materials sector outperformed the most, up 1.2% while Utilities underperformed the most, down 1.5%. US 10Y Treasury yields were 1bp lower at 1.47%. European stocks also ended the day almost flat with the DAX, CAC and FTSE with less than a 0.1% move across the indices. Brazil’s Bovespa ended almost flat. In the Middle East, UAE’s ADX was up 1% and Saudi TASI was flat. Asian markets have opened with a slight downtick – Shanghai, HSI and STI were down 0.1-0.2% while Nikkei was up 0.1%. US IG and HY CDS spreads were 0.1bp and 1.1bp wider. EU Main CDS spreads were 0.6bp tighter and Crossover CDS spreads were 3.9bp wider. Asia ex-Japan CDS spreads widened 5.7bp. The Asian primary markets are having its busiest day in about two months with 9 new dollar bond deals launched, the highest since September 14.

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New Bond Issues

  • Saudi Arabia $ 9.5Y sukuk at T+110bp area; $ 30Y at 3.6% area
  • AVIC International Holding Corp $ 5Y at T+200bp area
  • CNCB (Hong Kong) Investment $ 3Y at  T+145bp area
  • Wuhan Financial Holdings $ 3Y at  3.7% area
  • SF Holding $ 5/7/10Y at T+160/195/205bp area; $ 30Y on reverse enquiry basis
  • Zhengzhou Metro $ 3Y at T+160bp area
  • International Container Terminal Services $ 10Y at 3.7% area
  • VNET Group $ 3Y at  8.75% area
  • Jinan Lixia Holding Group $250mn 3Y at 3.9% area

New Bond Issues 9 Nov-1

 

SocGen raised €1bn via a 5NC4 bond at a yield of 0.176%, 17bp inside initial guidance of MS+55bp area. The bonds have expected ratings of A1/A/A. The notes have a first call date on 17 November 2025, and if not called, will reset to the prevailing 3-month Euribor + 38bp.

Westpac raised $5.5bn via a five-tranche deal.

The 3Y, 3Y FRN and 7Y senior bonds have expected ratings of Aa3/AA-, while the tier 2 bonds have expected ratings of Baa1/BBB+/A-. Proceeds will be used for general corporate purposes.

Bank of New York Mellon raised $1.3bn via a PerpNC5 bond at a yield of 3.75%, 25-37.5bp inside initial guidance of 4-4.125% area. The bonds have expected ratings of Baa1/BBB/BBB+. Proceeds will be used to redeem some or all of the outstanding shares of the Series E preferred stock and for general corporate purposes. The notes have a quarterly call, and are first callable on December 20, 2026. The coupon will reset to the prevailing US 5Y Treasury + 263bp on December 20, 2026 if not called.

 

New Bonds Pipeline

  • Port of Newcastle hires for $ 10Y bond
  • Impact Investment Exchange hires for $31.5 mn 4Y women’s livelihood bond
  • Weihai Wendeng District Bluesea Investment & Development hires for $ bond
  • China hires for € 3/7/12Y bond
  • Plaza Indonesia hires for $ 5NC3 sustainability-linked bond

 

Term of the Day

Reverse Enquiry

A reverse enquiry is an inquiry made by a potential investor to an issuer about purchasing a particular debt security in a one-off transaction. Here, the banker to the transaction acts as an agent to the institutional investor and tailors the issuance to meet the investor’s needs.

SF Holding has launched a three-trancher issuance on a reverse enquiry basis.

 

Talking Heads

On Fed warning of ailing China real estate sector posing risks to the US economy – Financial Stability Report

“Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States… Financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States”

On the Era of Super-Low Interest Rates May Be Ending – Goldman Sachs

“Stronger demand, especially for investment, along with the uptick in inflation expectations due to the pandemic inflation shock, suggest that we are on a long road to higher nominal interest rates relative to the post-global financial crisis world… We expect nominal policy rates across most developed market economies to rise well beyond the rock-bottom levels now priced in the bond market”.

On inflation rise being ‘temporary,’ but seeing upside risk – Fed’s Charles Evans

“I had expected to see more progress by now… These developments deserve careful monitoring and present a greater upside risk to my inflation outlook than I had thought last summer

On Goldman Snapping Up China Property Debt as Others Back Away

 Angus Bell, a member of Goldman’s portfolio management team

“Ultimately the property sector has been the key driver of Chinese growth over the past two decades… It’s unlikely the government will tolerate the impact on growth that would come about if it were to allow such a large number of developers to fail. The breadth of distress that the market is now pricing, it’s starting to look significantly out of alignment with the true extent of distress… We effectively see a requirement for policy makers and central banks to continue keeping liquidity conditions ample, particularly given the deteriorating growth backdrop and the demand for liquidity from the corporate sector”

On Bubble Fears Rising as Financial Conditions Flash Boom Times

Rick Rieder, BlackRock’s CIO of global fixed income

“The risk is you’re creating overheating prices… The risk to the system is you get too much liquidity in the system creating excess.”

Mohammed El-Erian, a Bloomberg Opinion columnist

“It’s not clear to me why we need to continue to run monetary policy so hot… The economy is doing just fine. But the collateral damage it’s creating, the unintended consequences that are resulting, are spreading. This is a Fed that’s going to wait and I fear is going to fall behind and we risk a pretty big policy mistake.”

Top Gainers & Losers – 09-Nov-21*

BondEvalue Gainer Losers 9 Nov-1

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