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 Pipeline
- eHi Car Services $ bond offering
- ENN Natural Gas $ bond
- Golden Energy and Resources $ bond
Rating Changes
- Fitch Affirms American Express IDRs at ‘A’; Outlook Revised to Stable
- Fitch Affirms Synchrony Financial at ‘BBB-‘; Outlook Revised to Stable
- Fitch Affirms Nexa Resources at ‘BBB-‘; Outlook Revised to Stable
- Fitch Affirms Votorantim at ‘BBB-‘; Outlook Revised to Stable
- Fitch Affirms Votorantim Cimentos at ‘BBB-‘; Outlook Revised to Stable
- Latam Airlines EETC 2015-1 Certificates Ratings Cut By S&P Following Aircraft Bid Deadline And Withdrawn
- Frontier Communications Rated ‘B-‘ By S&P After Bankruptcy Emergence; Outlook Stable; Debt Ratings Assigned
- Moody’s affirms CFE’s Baa1 rating and upgrades to Aaa.mx; negative outlook
Term of the Day
Century Bonds
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
“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.”
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.
Top Gainers & Losers – 4-May-21*
