US Treasury yields climbed 4-5bp higher across the curve. The peak Fed funds rate was up another 1bp to 5.31% for the July 2023 meeting. CME probabilities continue to show that markets are now pricing in three more 25bp hikes by the Fed in March, May and June. The chance of a 25bp hike in June has risen to 55% from 38% last week. US CDS and equity indices were closed on account of Presidents Day.
European equity markets ended mixed. The European main CDS spread widened by 0.5bp while crossover CDS spreads widened 3.6bp. Asian equity markets have opened mixed. Asia ex-Japan CDS spreads were 4.6bp wider.
New Bond Issues
- Bocom HK $ 3Y at T+100bp area
- BNP Paribas S$ PerpNC5 at 6.3% area
- Mizuho $ 6.25NC5.25/8.25NC7.25/11.
25NC10.25 at T+165/180/195bp area
Credit Agricole raised S$500mn via a 10NC5 bond at a yield of 4.85%, 35bp inside initial guidance of 5.2% area. The subordinated Tier 2 bonds have expected ratings of Baa1/BBB+/A-, and received orders over S$1.9bn, 3.8x issue size. The new bonds are priced 57bp tighter to Commerzbank’s recently issued S$ 10.25NC5.25 bonds that currently yield 5.42%. Commerzbank’s Tier 2 bond was rated Baa3 and were yielding 5.702% at issuance.
Tesco raised ~€780mn via a two-tranche deal. It raised:
- €500mn via a 8Y bond at a yield of 4.325%, 20bp inside initial guidance of MS+150bp area. The new bonds received orders over €1.3bn, 2.6x issue size.
- £250mn via a 12Y bond at a yield of 5.602%, 25bp inside initial guidance of UKT+205bp area. The new bonds received orders over £1bn, 4x issue size.
The senior unsecured bonds have expected ratings of Baa3/BBB-/BBB-, and may be called 3 months before maturity at par. Proceeds will be used for general corporate purposes.
New Bonds Pipeline
- HDFC mandates for $ 3Y
- Qatar Plans for $ Bond
- REC hires for $ Long 5Y Green bond
Rating Changes
- Fitch Downgrades Lippo Malls Indonesia Retail Trust to ‘CCC+’
- French Automaker Renault Outlook Revised To Stable On Increased Operating Resilience; ‘BB+/B’ Ratings Affirmed
Term of the Day
Commercial Paper
Commercial paper is an unsecured, short-term fixed income instrument typically issued to finance short-term liabilities/expenses due like payables, short-term loans etc. Similar to bonds, they pay a fixed interest rate during its tenor which ranges from a few weeks up to a year from the issue date.
Talking Heads
On Asia Central Banks May Need to Keep Hiking If Core Inflation Stays High, IMF Says
“This means that central banks should tread carefully by reaffirming their commitment to price stability. Indeed, they may need to hike rates further if core inflation does not show clear signs of returning to target… Given the two-sided risks to inflation in Japan, more flexibility in long-term yields would help to avoid abrupt changes later”
On Seeing ECB Reaching Terminal Rate During Summer – GC Member, Rehn
“With inflation so high, further rate hikes beyond March seem likely, logical and appropriate. I assume that we will reach the terminal rate in the course of the summer”
On China Onshore Credit Still a Reopening Trade Buy – Pictet Asset Management
“We have added exposure to onshore Chinese credits rather than rate bonds as we think this is where the opportunity is. China onshore bonds continue to offer stable and uncorrelated yield, and as such remain attractive as a portfolio diversifier.”
On Chinese Banks Holding Rates as Analysts Bet on Expected Easing\
Michelle Lam, Greater China economist at SocGen
“There are decent signs of recovery in the service sector, which has been hammered by the pandemic, but household confidence remains weak”
Top Gainers & Losers – 20-February-23*
