US equities ended marginally higher with the S&P and Nasdaq up 0.2% and 0.1%. Most sectors were in the green led by Energy, Utilities and Healthcare up over 0.5%. US 10Y Treasury yields eased 1bp to 1.63%. European stocks were higher with the DAX up 1% and the CAC and FTSE up 0.8% each. Brazil’s Bovespa was down 2.1%. In the Middle East, UAE’s ADX and Saudi TASI were down 0.4% each. Asian markets have opened broadly lower – Shanghai, HSI and Nikkei were down 0.9%, 1.5% and 0.6% while STI was up 0.5%. US IG and HY CDS spreads were 0.4bp and 3.1bp tighter. EU Main and Crossover CDS spreads were 1.1bp and 6.5bp tighter. Asia ex-Japan CDS spreads tightened by 1.9bp.
Euro zone inflation expectations, measured by bond investors as the 5Y5Y Forward Inflation Swap Rate hit a new seven-year high above 2.07% on Tuesday. US Richmond Fed Manufacturing Index for October came at 12, higher than September’s -3 print.
New Bond Issues
- ST Telemedia S$ Perp NC7.5 @ 4.5% area
- China Cinda Asset Management $ Perp NC5 AT1 preference shares @ 4.8% area
- BOC London branch $ 3Y sustainability re-linked @ T+75bp area
- Wuhan Metro Group $ 3Y sustainability @ T+120bp area
- Nanjing Yangzi State-owned Assets Investment $ 364-day @ 2.4% area
Mapletree Logistics Trust raised S$400mn via a PerpNC5 bond at a yield of 3.725%, 27.5bp inside initial guidance of 4% area. The bonds have expected ratings of BBB– (Fitch). The bonds are issued by HSBC Institutional Trust Services Singapore acting in its capacity as Mapletree’s trustee. The notes are first callable on 2 November 2026, and if not called, coupons will reset to the prevailing SORA-OIS rate + 248.5bp.
Morgan Stanley raised €1.75bn via a 11.5NC10.5 bond at a yield of 1.102%, 18-23bp inside initial guidance of MS+100-105bp. The bonds have expected ratings of A1/BBB+/A. The bonds have a first call date on 29 April 2032, and if not called, will reset quarterly to the prevailing 3-month Euribor + 83.3bp.
Emirates Islamic Bank raised $500mn via a 5Y sukuk at a yield of 2.082%, 25bp inside the initial guidance of MS+105bp area. The bonds have expected ratings of A+ (Fitch). The bonds will be issued by EI Sukuk. Emirates Islamic Bank is the obligor, and is 99.9% owned by Emirates NBD Bank.
Dah Sing Bank raised $300mn via a 10NC5 tier 2 bond at a yield of 3.133%, 35bp inside initial guidance of T+230bp area. The bonds have expected ratings of Baa1/BBB- (Moody’s/Fitch). The bonds have a first call date on 2 November 2026, and if not called, will reset to the prevailing US 5Y Treasury + 195bp. There will be permanent write-off if the Hong Kong Monetary Authority deems that the bank would fail without an injection of public funds or the bank receives an instruction from the authority to write down the notes.
ICBC Financial Leasing raised $1.35bn via a two-tranche deal. It raised:
- $600mn via a 3Y bond at a yield of 1.654%, 37bp inside the initial guidance of T+125bp area. The new bonds are priced 22.4bp wider to its existing 1.25% non-green 2024s that yield 1.43%
- $750mn via a 5Y climate bond at a yield of 2.296%, 35bp inside the initial guidance of T+145bp area. The new bonds are priced 18.6bp wider to its existing 1.75% non-green 2026s that currently yield 2.11%, indicating a negative greenium
The bonds have expected ratings of A2/A (Moody’s/Fitch) and will be issued by ICBCIL Finance while ICBC Financial Leasing has provided a keepwell. Proceeds for the three-year note will be used to fund the acquisition of assets in the ordinary course of trading, refinancing and other general corporate purposes. Proceeds for the five-year climate bond will be used for the refinancing of eligible wind power projects. The 3Y tranche received orders over $1.2bn, 2x issue size. Asia took 83% and EMEA 17%. Banks and financial institutions received 60%, hedge funds and fund managers 19%, pension funds, central banks and corporates 17% and private banks 4%. The 5Y tranche received orders over $1.3bn, 1.7x issue size. Asia bought 92% and EMEA 8%. Banks and financial institutions were allocated 63%, hedge funds and fund managers 25%, insurers and pension funds 7%, and private banks 5%.
Tower Bersama raised $400mn via a 5.5Y bond at a yield of 2.8%, 32.5bp inside initial guidance of 3.125% area. The bonds have expected ratings of BBB– (Fitch), and received orders over $1.65bn, 4.1x issue size. The new bonds are priced 37bp wider to its existing 2.75% 2026s that currently yield 2.43%.
Globe Telecom raised $600mn via a PerpNC5 bond at a yield of 4.2%, 30bp inside initial guidance of 4.5% area. The bonds are unrated, and received orders over $2.25bn, 3.8x issue size. Proceeds are for capital expenditure, funding maturing and/or existing obligations, and general corporate requirements. This is the issuer’s first dollar perpetual bond. The notes are first callable on 2 August 2026, and if not called, the coupon will reset on 2 November 2026 to the prevailing US 5Y Treasury + 552.7bp. The bonds also carry a dividend stopper and pusher.
IOI Corp raised $300mn via a 10Y bond at a yield of 3.488%, 25bp inside initial guidance of T+210bp area. The bonds have expected ratings of Baa2 (Moody’s), and received orders over $1.2bn, 4x issue size. The bonds are issued by wholly owned subsidiary IOI Investment (L) and guaranteed by IOI Corp.
New Bonds Pipeline
- CK Hutchison Holdings hires for € 8Y/12Y green bond
- Prudential hires for $ 12NC7 tier 2 bond
- Zhoushan City Investment Group hires for $ bond
- Athabasca Oil Corp. Upgraded To ‘B-‘ From ‘CCC’ On Completion Of Debt Offering; Removed From CreditWatch
- Moody’s downgrades Modern Land’s ratings to Ca/C; outlook negative
- Fitch Downgrades Modern Land to Restricted Default After Missed Payments
Term of the Day
Treasury Basis Trade
The Treasury Basis Trade is a trade which involves buying/selling a treasury bond and simultaneously taking the opposite position in a corresponding treasury futures contract. When a trader buys the bond and sells the futures, it is considered to be a ‘long basis’ trade and when he/she sells the bond and buys the futures, it is a ‘short basis’ trade. Bloomberg reports that hedge funds have piled into short basis trades given that the Fed rate hike path has been repriced to two hikes next year, compared with one a month ago. This led to a greater fall in the futures relative to the actual bond, leading to the trade.
On Inflation expectations hitting a new 7Y high, shooting past ECB target – ING Analysts
“Rising inflation swaps will be a key topic at Thursday’s ECB meeting… The persistent inflation scare is seeing expectations tilt towards tighter policies, and any pushback by the ECB may remain confined to the very front-end pricing… Sovereign spreads are likely the most vulnerable should there be any shift in focus towards any larger-than-anticipated scaling down of ECB purchase programmes – in size or flexibility”
On Rate Hike of 1.5% Now Brazil’s Base Case as Inflation Soars
Fabricio Taschetto, chief investment officer at hedge fund manager Ace Capital
“We had been expecting a 150 basis-point increase, but it seems to be a close call now,”
BTG Pactual strategists led by Carlos Sequeira
“Deteriorating fiscal scenario may drive inflation and short-term rates even higher, while economic activity should be impacted”.
On bond market’s expectations for inflation rising to highest level in seven years
Steven Friedman, a senior macroeconomist at the money management firm MacKay Shields
“They put great stock in inflation expectations.” “Those who are putting forward their opinions have skin in the game.”
“I have a view that as long as you move away from emergency conditions in a deliberate manner, the markets actually will like that and growth can continue.”
On the flattening in yield curves a warning indicator that rate hikes may hurt growth
Ebrahim Rahbari, global head of Group-of-10 foreign-exchange strategy at Citigroup
“The downside surprise to growth is probably going to outlive the upside in inflation.” “We might well run into a situation where central banks will turn hawkish for a little while only to have to ease maybe in a year or so again.”
Prashant Newnaha, a strategist at TD Securities
“Most other developed market central banks have not begun the process of normalizing — let alone pricing in a projected cash rate path to neutral.” “With the prospect that other central banks play catch-up in hiking rates, upside for the New Zealand dollar should be capped.”
Kei Yamazaki, a senior fund manager at Sumitomo Mitsui DS Asset Management Co.
“I’m having the impression that the central banks are getting ahead of themselves.” “The market is sending signals that rate hikes are still too early.”
On China asking firms to prepare for offshore bond repayments – Ting Meng, senior Asia credit strategist at ANZ Banking Group
“It shows the government’s attitude to rein in defaults of offshore dollar bonds.” “This is not enough, as refinancing is very hard given such high yields and high redemptions next year.”
Top Gainers & Losers – 27-Oct-21*