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US Treasury yields were stable across the curve on Tuesday. In the US, preliminary durable goods orders for February rebounded to 1.4%, above estimates of 1.0% and prior month’s data of -6.9% .This was helped by a surge in non-defence aircraft orders. Meanwhile, durable goods orders ex-transportation equipment rose 0.5%, above estimates of 0.4% and the prior month’s -0.3% reading. Credit markets saw the US IG CDS spread widen 0.5bp and the HY spread widen 2.3bp. Looking at equity indices, S&P and Nasdaq ended lower by 0.3-0.4%.
European equity indices closed slightly higher. European IG CDS spreads widened 0.4bp and crossover spreads were 4bp wider. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads were 0.4bp tighter. Asian IG dollar bonds are now trading tighter than its US counterparts, currently at 86bp as seen by their Option Adjusted Spreads (OAS) in the chart above. Schroders’ head of Asia credit Peng Fong Ng, said that Asia IG has “historically delivered the lowest volatility compared to other fixed-income asset classes. Asia credit’s improving average credit rating over the past decade further emphasizes the asset class’s stronger fundamentals”. Also, Goldman Sachs credit strategists note that due to a supportive macro backdrop, they believe “Asia credit spreads can stay lower for longer” with a preference to be “moderately longer than index duration, with most value in BBB”
Indiabulls Housing raised $350mn via a 3.25Y social bond at a yield of 9.70%, 25bp inside initial guidance of 9.95% area. The senior secured bond is rated B by S&P. Proceeds will be used according to the issuer’s sustainable financing framework and as may be permitted by RBI ECB guidelines like onward lending. The bond has maintenance covenants where it should maintain a net NPA-to-gross advances ratio of <5%, a security coverage ratio >=1.1:1, and total secured loans under its loan book <85% of total loans.
Deutsche Bank raised €1bn via a 6NC5 senior non-preferred bond at a yield of 4.223%, 35bp inside initial guidance of T+185bp area. The new bonds are priced 37.7bp tighter to its existing 5% bonds due September 2030 (callable in September 2029) that currently yields 4.60%. The notes are rated Baa1/BBB/A-.
SMBC Aviation Capital raised $1.5bn via a two-part deal. It raised $650mn via a 5Y bond at a yield of 5.306%, 27bp inside initial guidance of T+135bp area. It also raised $850mn via a 10Y bond at a yield of 5.588%, 25bp inside initial guidance of T+160bp area. The senior unsecured bonds are rated A-/BBB-. Both notes have a change of control put at 101. Proceeds will be used for general corporate purposes, which may include the purchase of aircraft and the repayment of existing debt.
Commercial Bank of Qatar (CBQ) raised $750mn via a 5Y bond at a yield of 5.501%, 25bp inside initial guidance of T+150bp area. The senior unsecured bonds are rated A3/A- (Moody’s/Fitch).
Mamoura raised $1bn via a 10Y sukuk at a yield of 4.959%, 30bp inside initial guidance of T+100bp area. The senior unsecured bonds are rated Aa2/AA, and received orders of over $7bn, 7x issue size. The issuer is Mubadala’s MDGH Sukuk Ltd. The new bonds are priced 7.1bp tighter to its existing 4.375% 2033s that currently yield 5.03%.
Korea Mine Rehabilitation raised $400mn via a long 5Y bond at a yield of 5.299%, 35bp inside initial guidance of T+140bp area. The senior unsecured bonds are rated A+/A+. Proceeds will be used for general Corporate Purposes, including repayment of maturing debt and not for any activities relating to the development of coal mines. The notes have a change of control put at par if the central government of Korea ceases to own and control (directly and/or indirectly) at least 51% of the issuer.
Wing Tai Holdings raised S$100mn via a 5Y bond at a yield of 4.38%, 22bp inside initial guidance of 4.60% area. The senior unsecured bonds are unrated. Proceeds will be used for working capital purposes, investments of the issuer and its subsidiaries, and to refinance existing debt. Private banks would receive a 25-cent concession.
AIA Group raised $1bn via a 10Y bond at a yield of 5.495%, 30bp inside initial guidance of T+155bp area. The bonds are rated A2/A-/A. Proceeds will be used for general corporate purposes. The notes can be redeemed early upon the occurrence of a tax event/rating event/regulatory event/minimal outstanding amount, subject to redemption conditions.
Glencore raised $4bn via a five-part deal. Details are given in the table below.
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Moody’s upgrades BP to A1, outlook stable
Fitch Upgrades British American Tobacco to ‘BBB+’; Outlook Stable
Fitch Upgrades Turkiye Wealth Fund to ‘B+’; Outlook Positive
Moody’s upgrades Singlife’s ratings; outlook stable
Debt covenants (also known as loan covenants, banking covenants or financial covenants) are lending restrictions in financial agreements that limit the actions of the borrowers. Lenders typically use covenants to ensure borrowers will operate within certain rules so that borrowers can repay their debt.
Covenants can either be positive or negative. With positive covenants, borrowers promise to do certain actions such as maintain a certain debt to equity ratio, interest coverage ratio, or level of cash flow, etc. With negative covenants, borrowers are restricted from certain actions such as to sell certain assets or incur more debt. Investors can find the covenants on a bond in its offering circular or prospectus.
On PGIM Bullet-Proofs Bond Portfolios Even as Traders ‘Party On’ After Fed
Greg Peters, Co-CIO PGIM Fixed Income
“I have officially grown exhausted around the nonstop Fed-speak attention. Focus on the data — ignore the white noise of the chatter… If you look at the data, inflation on balance, at growth on balance, at the deficit being funded on balance, all these things point to higher rates”
On Asian Economies Have ‘Robust’ Crisis Shields
BOJ Assistant Governor, Tokiko Shimizu
“The current Asian economy is so robust. Even though the US and European countries have faced high inflation, high interest rates, Asian countries almost all are in good shape”
On Corporate Bonds Are The Safest They’ve Been in Almost a Decade
Thomas Neuhold, Fund Manager Gutmann Kapitalanlage
“Rating agencies are following the debt ratios of the companies, which appear to be getting better”
Deutsche Bank credit strategists
“The signal of central bank rate cuts is boosting animal spirits”
James Vokins, global head of IG credit at Aviva Investors
“We can stay at tight valuations for a long time as long as those (pre-pandemic) technicals remain”