Dollar bonds in our universe dropped again in April, with 88% of bonds in the red. Investment grade (IG) bonds – more sensitive to interest rate changes compared to high yield (HY) bonds, all else equal – were the most impacted. 95% of investment grade dollar bonds ended April in the red, compared to 78% of high yield dollar bonds that ended the month lower. The move in the IG space comes after US 10Y Treasury yields jumped over 59bp through the month, from 2.34% on March 31, to 2.93% at end-April. The US 2s10s yield curve steepened from -6bp on March 31 to 36bp in mid-April, post which it retreated to 18bp. This was after headline inflation continued to pick up in the US, accelerating 8.5% YoY in March.
In the Investment Grade (IG) space, Sino-Ocean’s dollar bonds rallied the most. It raised $200mn via an SBLC-backed bond, the first issuance by a Chinese developer since January (also an SBLC-backed bond by Greentown China). Adding further confidence to bondholders, the company redeemed its $500mn 5.25% dollar bond due April 30. Among the largest losers were high duration IG corporates that lost value in April, ahead of the impending rate hikes. Other notable losers were Boeing and Country Garden. Boeing reported a Q1 2022 net loss of $1.2bn vs. a $561mn loss during the same period last year. Country Garden’s bonds also trended lower through the month as broad property sector concerns weighed on the company’s bonds.
Sri Lanka’s dollar bonds featured among the top losers during the month of April as the sovereign announced suspension of payments on its $51bn external debt calling it a “last resort” emergency measure. The nation defaulted on its coupons last month and is said to default on its $1bn bond maturing in July. Another major loser was India’s Future Retail whose 5.6% dollar bond due 2025 dropped over 50% on a single day after Reliance scrapped its bid after nearly 70% of Future Retail’s secured creditors voted against the scheme.
Global corporate dollar bond issuance was muted given the dismal environment. New bond issuance volume stood at $187bn, down 38% MoM and 36% lower YoY. 87% of total issuances came from investment grade issuers while 11% came from high yield or junk-rated issuers as market volatility weighed on high yield deals in particular. The balance 2% were unrated deals.
APAC ex-Japan & Middle East G3 issuance stood at $22.1bn, down 41% YoY and over 14% MoM. Investment grade issuances dropped 10% MoM to $18bn while high yield dropped 23% to $2.8bn. Again, similar to March, volumes were low due to sharp bouts of volatility during the month, emanating from the Russia-Ukraine war and the rapid increase in interest rates along with the probability of rate hikes rising.
Some of the largest deals last month were led by global banking majors – BofA, JPMorgan and Morgan Stanley raised $8.75bn, $8.5bn and $7bn each via four-part issuances. However, the largest deal in April was Amazon’s $12.75bn seven-part jumbo issuance. Amazon’s issuance was the second largest deal yet in 2022, following AT&T-Discovery’s $30bn 11-part deal in Q1 which was also the fourth largest corporate dollar issuance ever.
Top Gainers & Losers
Among the top gainers in April were select Chinese property developers like China SCE, China South City, Powerlong, Ronshine, Gemstones, Agile, Times China etc. whose dollar bonds maturing in the near term picked up. Mexico’s Unifin also saw its dollar bonds rally after the Mexico’s finance ministry said that it was forming an MXN 10bn ($500mn) credit program to increase lending to small and medium businesses. Barclays said that the program “should meaningfully enhance the company’s ability to tap local markets at low rates”.
The top losers during the month included the Russian sovereign and Russian and Ukrainian corporates like Sovcom, Global Ports, Gazprom, Lukoil, SSB Ukraine etc. as the war continued. Also, the imposition of sanctions and a freeze on payments of Russian companies on their dollar bonds further hurt these companies’ bonds as default fears kicked in. Besides, Sri Lanka and Future Retail were also prominent losers after the former suspended its external debt payments while the latter saw Reliance scrap its bid for the retailer’s assets.