US Treasury yields dropped lower across the curve as high frequency data showed a contraction in economic activity. US 2Y and 5Y yields were own the most, by 12bp each. ISM data showed that US factory activity contracted by more than expected. March ISM Manufacturing fell from 47.7 to 46.3, the lowest reading since June 2020, and below estimates of 47.5. Among its components, ISM New Orders dropped from 47.0 to 44.3, below estimates of 47.5. The inflationary component i.e., ISM Prices Paid dropped from 51.3 to 49.2, below estimates of 51.1. The peak Fed funds rate was unchanged at 4.98% for the May meeting.

CME maximum probabilities still remain slightly skewed towards a 25bp rate hike in May (60% probability vs. 48% a day earlier). US IG and HY CDS spreads widened 0.6bp and 5.8bp respectively as the broad risk-off sentiment eased. The S&P and Nasdaq ended mixed on Monday, with the former up by 0.4% and the latter down by 0.3% respectively.

European equity markets ended higher too. European main CDS spreads widened by 1bp and Crossover spreads were 8.9bp wider. Asia ex-Japan CDS spreads widened by 1.8bp. Asian equity markets have also opened mixed this morning


New Bond Issues

  • CapitaLand Investment S$ 7Y at 4.45% area 

New Bond Issues 4 Apr 23

REC raised $750mn via a long 5Y Green bond at a yield of 5.659%, 37.5bp inside initial guidance of T+250bp area. The senior unsecured bonds have expected ratings of Baa3/BBB–. Proceeds will be used to finance eligible green projects. Analysts at CreditSights and Nomura estimated fair value to be slightly lower than what was priced, at around 203bp and 210bp over respectively. CreditSights noted that the state-owned power company is backed by strong government support, and that it included ~10bp of new issue premium in its estimates of fair value. The new bonds are priced at a new issue premium of 16.9bp to its existing 4.625% 2028s that currently yield 5.49%. “This was quite yieldy compared to the other trades priced in the last couple of weeks… We have not seen any IG Indian names come to the market in a long while. It’s the rarity factor from the Indian space… This could potentially start to open the door for Indian issuers,” he said. “We know some that are looking, including from the high-yield space, said a syndicate banker.

Ford Motor Credit raised $1.5bn via a 5Y bond at a yield of 6.8%, 45bp inside the upper-end of initial guidance of 7.25% area. The senior unsecured bonds have expected ratings of Ba2/BB+/BB+. Proceeds will be used for general corporate purposes. The new bonds are priced at a new issue premium of 38bp to its existing 7.35% 2027s that yield 6.42%.

Shinhan Bank raised $500mn via a 5Y Gender Equality bond at a yield of 4.597%, 38bp inside initial guidance of T+145bp area. The senior unsecured bonds have expected ratings of Aa3/A+/A, and received orders over $4.2bn, 8.4x issue size. Proceeds will be used to (re)finance eligible social projects that help women borrowers access essential services. Asset and fund managers received 65% of the notes, banks 27%, official institutions and insurers 6% and corporates, private banks and others 2%. Asia took 60%, the US 24% and EMEA 16%. The new senior social bonds offer a yield pick-up of 86.3bp over its existing 4.5% Tier 2 2028s that yield 5.46%.


New Bonds Pipeline

  • Cyprus hires for first ever sustainable bond


Rating Changes

  • Fluor Corp. Rating Lowered To ‘BB+’ From ‘BBB-‘; Outlook Stable
  • Fitch Places China Great Wall AMC (International)’s ‘A’ IDR on Rating Watch Negative
  • Moody’s affirms Diebold’s Caa2 CFR, changes outlook to negative

Term of the Day

Discount Perpetual Securities (Discos)

Discount Perpetual Securities (Discos) typically refer to legacy perpetual floating rate bonds issued by a bank that trade at a significant discount to par value. These legacy bonds were typically issued in the 1980s and are priced equivalent to or in some cases even considered as Tier 2 capital of banks. While they may share some similar features with AT1s, coupon risk and write-down risk are considered to be significantly lower. Coupons are either cumulative or non-cumulative but are not subject to automatic restrictions in case of a maximum distributable amount buffer breach, as per Atlanti Asset Management. Also, there is no explicit write-down or equity conversion trigger. 


Talking Heads

On Warning that Stocks Are in ‘Calm Before the Storm’ – JPMorgan’s Kolanovic

“The Fed indicated no intention to cut interest rates this year, yet risk assets are exhibiting an unprecedented rally, with European stocks trading near all-time highs and US stocks recovering recent losses. We expect a reversal in risk sentiment and the market retesting last year’s low over the coming months… Although central banks are still communicating, there is ground to cover on fighting inflation and pushing back against the market’s assumption of cuts”

On Credit Suisse Facing Bankruptcy Without UBS Deal – SNB’s Schlegel

“It’s very, very likely a financial crisis in Switzerland and worldwide would have happened… CS would then have been bankrupt… Our mandate is price stability. We’ll do everything to return inflation to our target. And we don’t see signs that financial stability in Switzerland is threatened in any way. If necessary, we’ll raise interest rates again”

On Pakistan, Sri Lanka Weighing Rate Hikes as Inflation, Debt Bite

Hasnain Malik, a strategist at Tellimer

“With fiscal policy still a little too loose in Pakistan and Sri Lanka, higher interest rates will shoulder the burden of countering inflation and establishing at least one leg of policy credibility”

Shivaan Tandon of Capital Economics

“Policymakers will also be keen to impress the IMF, by displaying their commitment towards containing inflation, in order to secure a much-needed funding to mitigate the risk of default and raise the dangerously low level of foreign-exchange reserves”


Top Gainers & Losers – 04-April-23*


BondEvalue Gainer Losers 4 Apr 23

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