April was a month of cooling off for the Asian bond market after a strong first quarter characterized by dovish Fed commentary, booming bond prices and falling credit spreads. Mark-to-market gains (ex-coupon) for USD denominated bonds in the BEV universe stood at $4.7 billion, modest compared to $75.4 billion in the first three months of 2019 as reported by us last month.
The 10-year Treasury yield remained rangebound, ending the month 9 basis points higher at 2.5%. Credit spreads, as measured by the Markit iTraxx Asia ex-Japan Investment Grade index, dropped to pre-financial crisis levels of ~63 basis points before rising back to 70 basis points in the first week of May.
60% of bonds in the BEV universe delivered a positive price return during April. Of these, a group that stood out were bank perpetual bonds. Below is a boxplot that shows the 1-month price return (ex-coupon) of bank perpetuals (in the BEV universe) across regions.
As can be seen in the chart above, bank perpetual bonds rallied in price terms across regions in April. Spanish bank Santander led the rally with its Euro denominated 4.75% and 5.25% perpetuals up over 5%.
Asian High Yield Issuance at Record High
Primary markets maintained strong momentum as Asia ex-Japan G3 currency issuance volume reached a 16-month high at $38.3 billion. High yield issuers continued to take advantage of decade low credit spreads by issuing a record $11.7 billion in new bonds, the highest monthly volume till date.
Source: BondEvalue, Bloomberg
Largest Deals in April 2019* (ranked by performance)
|Issuer / Coupon / Maturity||Size (mn)||Issue Price||Price (8-May-19)||Return since Issuance|
|Sunac 7.95% 2023||750||98.89||100.32||1.44%|
|AIA 3.6% 2029||1000||99.49||100.70||1.21%|
|CK Hutchson 3.625% 2029||750||99.24||100.38||1.15%|
|CK Hutchson 3.25% 2024||750||99.90||100.88||0.98%|
|Tencent 3.975% 2029||3000||99.97||100.52||0.56%|
|Bank Mandiri 3.75% 2024||750||99.00||99.32||0.33%|
|Tencent 3.491% 2024||750||100.00||100.29||0.29%|
|DBS 2.85% 2022||750||99.95||100.17||0.23%|
|ICBC Singapore 3.41% 2024||600||100.00||100.21||0.21%|
|Vedanta 9.25% 2026||600||100.00||100.13||0.12%|
|BOC Aviation 3.5% 2024||750||99.33||99.44||0.11%|
|ICBC Singapore 3.3% 2022||900||100.00||100.08||0.08%|
|Tencent 3.28% 2024||1250||99.99||100.02||0.03%|
|Resorts World 4.625% 2029||1000||99.27||99.23||-0.04%|
|Evergrande 9.5% 2022||1250||100.00||99.69||-0.31%|
Source: BondEvalue | Primarily from the APAC region with benchmark deals from the Americas, Europe and Middle East | All in USD unless stated otherwise
Top Gainers & Losers – April 2019*
Source: BondEvalue | *We have omitted bonds trading below $70 on 28-Feb-19 as illiquidity distorts price changes. All bonds are denominated in USD unless stated otherwise
HNA Group’s Hong Kong Airlines’ bonds suffered as two groups within the conglomerate fight for control of the beleaguered airline. In a shareholder meeting last month, management revealed that the airline needs an infusion of at least HK$2 billion or it stands to lose its operating license. The airline lost HK$3 billion in 2018.
CWT International, an investment holding company controlled by HNA, missed a loan payment last month, forcing creditors to seize assets that include overseas properties and golf courses.
Concerns over Chinese state-owned enterprises re-emerged after Tianjin government-backed commodities trader Tewoo Group’s bonds tanked amid liquidity concerns and downgrades.
Tewoo’s bonds, which carried an investment grade rating of BBB, were first put on negative watch by Fitch on 10th April, followed by a series of downgrades. Markets were ahead of the curve as bond prices nosedived before the bonds lost their investment grade rating on 29th April, when the issuer’s long-term foreign currency issuer default rating was lowered to B-.
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