Advanced Theory & Practice of Bonds

IBF Recognized Under FTS
1-2 December 2021

Two-day immersive course on bonds designed for private bankers and advisors. 90% funding* available to eligible company-sponsored candidates.

The S&P gained 0.3% while Nasdaq slipped 0.5% on Monday. The US ISM Manufacturing Index fell to 60.7 in April from March’s 37Y high of 64.7 and well below the 65.0 market forecast. US 10Y Treasury yields slipped 3bp to 1.60%. Meanwhile, the US Treasury announced an increase in projected government borrowing in 2Q2021 to $463bn due to pandemic-related spending. US IG CDS spreads were 0.2bp tighter and HY tightened 1.3bp. Asian equity markets are mixed with China’s equity index shut for labor day. Asia ex-Japan CDS spreads were 1.6bp tighter with five new bond deals launched this morning.

 

New Bond Issues

  • Changi Airport Group S$ 10yr at 2% area
  • Khazanah Nasional $ 5Y/10Y Sukuk at T+125bp/T+150bp areas; books over $2bn
  • Newcastle Coal Infrastructure $ 10yr IPTs, T+360bp area
  • Shinhan Financial Group $ sustainability AT1 at 3.4% area
  • Sarana Multi Infrastruktur capped $300mn 5Y at 2.4% area

New Bond Issues 4 May

 

New Bond Pipeline

  • eHi Car Services $ bond offering
  • ENN Natural Gas $ bond
  • Golden Energy and Resources $ bond

 

Rating Changes

 

Term of the Day

Century Bonds

Century bonds are bonds with a maturity of 100 years and are a relatively rare market phenomenon although countries including Argentina, Austria and Mexico and corporates such as Walt Disney and Coca-Cola have issued these in the past. The general idea is for issuers to take advantage of low yield environments and the demand comes from certain institutional clients who have a need to extend the duration of their portfolios such as pension funds and insurance companies. These bonds, like perpetuals, will usually come with a call schedule.

Century bonds are often of great interest to the hedge fund community because of the so-called “high convexity” of the securities. “The convexity of a bond is a measure of the curvature, or degree of the curve, in the relationship between bond prices and bond yields. It shows how the duration of a bond changes as interest rates change,” explained Ioannis Rallis of the SSA team in JP Morgan. “With a high convexity bond, the price falls less if yields go up than it increases when yields go down. That asymmetry is very interesting for some investors who can use it as a hedge if interest rates, as some expect, have further to fall.”

Talking Heads

On the US Treasury quadrupling borrowing estimates to pay for stimulus – Thomas Simons and Aneta Markowska, Jefferies analysts

“These projections are difficult to rely on,” they wrote. “There is a significant amount of risk surrounding the size and pacing of tax receipts during the quarter and outlays related to the stimulus as well. These projections should be viewed in the context that the outlook for financing changes on a daily basis.”
Nichole Hammond, a portfolio manager at Angel Oak Capital
“I think there is a fair amount of complacency in credit right now,” said Hammond. “We don’t think we are being compensated to invest in the riskier issuers.”
According to Bank of America analysts
BofA analysts said they believed fund managers were now “struggling” to justify taking on risky bets with such low returns. “At some point the reach for yield reaches its limit, and we think it’s here,” they said.
“Over the next 12 months, we could see progress on a unified global legal and regulatory framework for Islamic finance … we believe that such a framework could help resolve the lack of standardisation and harmonisation that the Islamic finance industry has faced for decades,” S&P said. “We see pressure on real estate developers, given the drop in real estate prices in the GCC (Gulf Cooperation Council) and building risks in the commercial real estate sector,” S&P said. “Similarly, companies related to aviation, tourism, travel, and hospitality – sectors that have been severely hit by COVID-19 – will take several quarters to recover to prepandemic levels.”
Stanley Chan, director of research at Emperor Securities
“A white knight has come to save the company [Founder Group] but investors question how much the white knight will benefit” from the deal, said Chan. “Investors may also be concerned whether [Ping An] was tasked to save other companies by the authorities, leading to some selling pressure.”
According to Ping An Insurance filing
“Participation in the Founder Group restructuring is an important move to further boost its strategic layout in the health care sector and actively build a health care ecosystem,” the filing said. “The company will strive to achieve outstanding investment returns and social benefits, and further enhance the company’s comprehensive strength and corporate reputation.”

Top Gainers & Losers – 4-May-21*

BondEvalue Gainer Losers 4 May
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