Advanced Theory & Practice of Bonds

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1-2 December 2021

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

US equities ended lower with the S&P and Nasdaq down 0.4% and 0.6% respectively. Sectoral losses were led by Consumer Discretionary, down 1.4% followed by Financials and IT, down 0.4-0.5%. US 10Y Treasury yields were 1bp lower at 1.46%. Europe’s DAX and CAC ended flat while FTSE was down 0.4% move across the indices. Brazil’s Bovespa ended almost flat. In the Middle East, UAE’s ADX was up 0.2% and Saudi TASI was down 0.8%. Asian markets have opened with a slight downtick – Shanghai and HSI were down 1.2% each, STI was down 0.6% and Nikkei was down 0.3%. US IG and HY CDS spreads were 0.7bp and 2.5bp wider. EU Main CDS spreads were 0.9bp wider and Crossover CDS spreads were 4.8bp wider. Asia ex-Japan CDS spreads widened 2.3bp.

Germany ZEW Current Conditions for November were down to 12.5 vs 18 forecasted and 21.6 in October. ZEW Economic Sentiment for November came at 31.7, sharply beating forecasts of 20.


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New Bond 
Issues

  • China € 3/7/12Y at MS+20/40/65bp area
  • Weihai Wendeng District Bluesea Investment & Development $85mn 364-day at 6.5% final

New Bond Issues 10 Nov-1

Saudi Arabia raised $3.25bn via a two-tranche deal. It raised $2bn via a 9.5Y sukuk at a yield of 2.341%, 20bp inside initial guidance of T+110bp area, and $1.25bn via a 30Y bond at a yield of 3.36%, 24bp inside initial guidance of 3.6% area. The notes have expected ratings of A1/A (Moody’s/Fitch). The sukuk received orders over $6.9bn, 3.5x issue size, while the 30Y bonds received orders over $4.1bn, 3.3x issue size. The sukuk are issued by KSA Sukuk Ltd.

ING raised €1bn via a 11NC6 tier 2 bond at a yield of 1.053%, 20bp inside initial guidance of MS+135bp area. The bonds have expected ratings of Baa2/BBB/A-. The bonds are callable daily from 16 August 2027 to 16 November 2027, and if not called, the coupon will reset on that date to the prevailing 5Y EUR swap rate + 115bp.

International Container Terminal Services (ICTSI) raised $300mn via a 10Y bond at a yield of 3.5%, 20bp inside the initial guidance of 3.7% area. The bonds are unrated. Proceeds will be used for general corporate purposes and to fund the cash tender offer to buy its existing $400mn 5.875% Perps and $375mn 4.875% Perps. The bonds are issued by ICTSI Treasury BV and guaranteed by ICTSI. The bonds also carry a change of control put at 101.

Lufthansa raised €1.5bn via a two-tranche deal. It raised €600mn via a 2Y bond at a yield of 1.625%, 12.5bp inside initial guidance of 1.75% area, and €900mn via a 5.5Y bond at a yield of 3%, 12.5bp inside initial guidance of 3.125% area. The bonds have expected ratings of Ba2/BB-. Proceeds will be used for general corporate purposes.

Banco de Sabadell raised €750mn via a PerpNC6 AT1 at a yield of 5%, a solid 50bp inside initial guidance of 5.5% area. The bonds have expected ratings of B+ (S&P). The AT1s are first callable on 19 May 2027, and if not called, the coupon will reset on 19 November 2027 to the prevailing 5Y EUR swap rate + 517.1bp. The AT1s will be converted to shares if the CET1 ratio of the bank and/or the group falls below 5.125%. This is the first euro AT1 issuance since BPCE’s €1.75bn dual-tranche AT1 issuance in late September. The bonds offer a juicy yield pick-up of 102bp over its older euro 5.75% Perp callable in 2026 that is currently yielding 3.98%.

CNCB (Hong Kong) Investment raised $500mn via a 3Y bond at a yield of 1.787%, 35bp inside initial guidance of T+145bp area. The bonds have expected ratings of BBB (S&P), and received orders over $1.75bn, 3.5x issue size. Proceeds will be used for general corporate purposes and refinancing. The bonds are issued by wholly owned CNCBINV1 BVI and guaranteed by CNCB Hong Kong Investment, which provides money lending and investment business services. It is a strategic subsidiary of China Citic Bank and has indirect support from ultimate parent Citic Group. The new bonds are priced 68.7bp wider to parent China Citic Bank’s 0.875% bonds due 2024s, rated BBB+ that currently yield 1.1%.

AVIC International Holding Corp raised $500mn via a 5Y bond at a yield of 2.702%, 37bp inside initial guidance of T+200bp area. The bonds have expected ratings of A– (Fitch), in line with AVIC International Holding, and received orders over $1.4bn, 2.8x issue size. The bonds are issued by AVIC International Finance & Investment and guaranteed by AVIC International Holding. The new bonds are priced 15.2bp wider to its existing 2.75% 2026s that currently yield 2.55%.

SF Holding raised $1.2bn via a three-tranche deal. It raised:

  • $400mn via a 5Y bond at a yield of 2.431%, 25bp inside initial guidance of T+160bp area
  • $300mn via a 7Y bond at a yield of 3.014%, 25bp inside initial guidance of T+195bp area
  • $500mn via a 10Y bond at a yield of 3.234%, 25bp inside initial guidance of T+205bp area.

The bonds have expected ratings of A3/A–/A–, in line with SF Holding, which is a Chinese express delivery and logistics service provider, and received orders over $4.2bn, 10.5x issue size. The bonds are issued by wholly owned subsidiary SF Holding Investment 2021 and guaranteed by SF Holding. It had initially planned to raise an additional 30Y bond on reverse enquiry basis, but that was dropped without specifying a reason.

Zhengzhou Metro raised $500mn via a 3Y bond at a yield of 1.915%, 40bp inside initial guidance of T+160bp area. The bonds have expected ratings of A3/A (Moody’s/Fitch), and received orders over $1.9bn, 3.8x issue size. The issuer is a state-owned entity which operates the rail transit system and major public transportation infrastructure in Zhengzhou, the capital of China’s Henan province.

Wuhan Financial Holdings raised $450mn via a 3Y bond at a yield of 3.4%, 30bp inside initial guidance of 3.7% area. The bonds are unrated, and received orders over $1.2bn, 2.7x issue size. Proceeds will be used for offshore debt repayment and for onshore project investments.

Jinan Lixia Holding Group raised $250mn via a 3Y bond at a yield of 3.4%, 50bp inside initial guidance of 3.9% area. The bonds are unrated, and received orders over $750mn, 3x issue size. Proceeds will be used in the PRC for the construction of 5 projects. The bonds are issued by Minghu International (BVI) Investment Development and guaranteed by Jinan Lixia, the exclusive entity for central business district development, infrastructure construction and primary land development for the Lixia district in Jinan, the capital of Shandong province in China.

New Bonds Pipeline

  • Port of Newcastle hires for $ 10Y bond
  • Impact Investment Exchange hires for $ 31.5 mn 4Y women’s livelihood bond
  • Plaza Indonesia hires for $ 5NC3 sustainability-linked bond

 

Rating Changes

 

Term of the Day

Fallen Angel

A fallen angel is the term given to an issuer whose credit rating has been cut from investment grade to junk due to deteriorating financial conditions of the company. The downgrade to junk may have a negative impact on its bond prices as asset managers that are mandated to hold only investment grade debt are forced to sell off their holdings in the fallen angels.

Chinese property developer Shimao was recently downgraded by S&P to junk (BB+) from investment grade (BBB-). It is rated Ba1 (junk) by Moody’s and BBB- (IG) by Fitch.

Talking Heads

Bond Market Flashes Mixed Messages as Real Yields Sink Deeper

Jerome Schneider, head of short-term portfolio management and funding at PIMCO

“Bottom line, if you believe that real yields are attractive here, it means that your view is that longer-term inflation stays pretty dang high for a long time”

Gary Pzegeo, head of fixed income at CIBC Private Wealth Management

“There is a negative message…There’s low potential growth and high implied inflation, which absorbs what low nominal yield there is.”

Tom Porcelli, RBC Capital Markets’s chief U.S. economist

“It can’t be a reflection of growth, because growth is quite strong and it’s going not just this year but in 2022… Is it an inflation story? Inflation is going to slow down, there’s no question about that. So, I don’t know what you are left with — and that’s the problem.”

On Fed’s Daly looks to mid-2022 for more clarity on jobs, inflation

“I’m looking at the summer of 2022 is when we should – knock on wood, no more variants, no more delta surges – get some clarity,”  If the Fed raises interest rates too soon, it will do very little to reduce prices but will “absolutely” reduce the pace of job gains. “That’s too much risk to take when we don’t have any indication that these are today persistent trends”

On more clarity regarding economic outlook – Minneapolis Fed’s Kashkari

“I’m optimistic, in the next three, six, nine months we will get a lot more information” and clarity about whether the millions who left the workforce during the pandemic will return. If they don’t, “that’s going to give me more concern that the high inflation readings that we’ve been seeing may be sustained… I’m looking at the summer of 2022 is when we should – knock on wood, no more variants, no more Delta surges – get some clarity”

Top Gainers & Losers – 10-Nov-21*

BondEvalue Gainer Losers 10 Nov-1

 

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