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US Treasury yields moved higher by 3-4bp across the curve yesterday. The S&P Global flash composite PMI advanced to 52.3, thanks mainly to stronger services activity. This is above estimates of 51.0 and the prior month’s 50.9. The flash services sector PMI climbed to 52.9, the highest since June 2023, and above 51.4 in the prior month. The manufacturing sector PMI came at 50.3, higher than expectations of 47.6 and the prior 47.9 reading, indicating an upturn from contraction, to expansion in the sector. Looking at credit markets, US IG CDS spreads widened 0.2bp while HY spreads were 2bp wider. Equity markets saw the S&P and Nasdaq close higher by 0.1% and 0.4% respectively.
European equity markets ended higher too. Credit markets in the region saw the European main CDS spreads tighten by 1.6bp and crossover spreads tighten by 8.5bp. The headline preliminary Eurozone Composite PMI rose to 47.9 in January, from December’s 47.6, slightly below estimates of 48.0. The Services PMI fell to a three-month low of 48.4 from December’s 48.8, below estimates of 49.0. Manufacturing activity, where the PMI shows contraction since July 2022, declined again this month, albeit at a shallower pace. The headline reading was at 46.6, slightly better than estimates of 44.7 and the prior 44.4. Asian equity markets have opened higher today. Asia ex-Japan IG CDS spreads tightened by 3.1bp. China said that it will cut the reserve requirement ratio (RRR) for banks and hinted at more upcoming support measures. The RRR will be lowered by 0.5% on February 5 to provide an estimated RMB 1tn ($139bn) in long-term liquidity.
QNB Finance raised $1bn via a 5Y bond at a yield of 5.058%, 30bp inside initial guidance of T+130bp area. The senior unsecured bonds are rated Aa3/A+/A, and received orders of over $3bn, 3x issue size. Qatar National Bank QPSC is the guarantor of the bonds and QNB Finance Ltd is the issuer.
Kepco raised $1.2bn via a 3Y green bond at a yield of 4.945%, 35bp inside initial guidance of T+115bp area. The senior unsecured bonds are rated Aa2/AA. Proceeds will be used to finance or refinance, in whole or in part, the issuer’s existing/future funding for development and operations of projects under its sustainable finance framework dated September 2021.
PMIs or Purchasing Managers’ Index are an index composed of a monthly survey of purchasing managers/supply chain managers across industries. This is a diffusion index, a statistical measure of summarizing the common tendency of a series – if there are more number of values rising than falling, the index is above 50 and if the falling values exceed those rising, the index goes below 50. For PMIs, a value below 50 indicates contraction and a value above 50 shows expansion. These surveys are taken over different areas of the supply chain business: New Orders, Employment, Inventories, Supplier Deliveries and Production covering imports, exports, prices and backlogs. In most countries, Markit publishes the PMI numbers while other organizations publish them too. Markit generally publishes the month’s PMIs in last week of the month.
On Investors tempering US rate cut bets as Fed meeting looms
Helen Given, FX trader at Monex USA
“Markets seemed to be seeing the Fed through rose-colored glasses to end 2023. “With the new year, price expectations have begun to shift.”
Brian Rose, senior economist at UBS Global Wealth Management
“Given the strength of both economic growth and wage growth, the Fed still has to worry about the medium-term inflation outlook”
On AT1 Bonds Now Seen as High-Reward Bet on Interest Rate Cuts
Jeremie Boudinet, head of IG credit PM at La Française Asset Management
“Spreads are supposed to reflect the health of issuers, but this is not the way they have been trading… AT1 “performance will be correlated to the direction of rates”
On Rush of Corporate Bond Sales Setting Up LatAm for a Rebound Year
Conor Hennebry, global head of corporate debt at Banco Santander
“With Latin America, the number one risk is US inflation and interest rates. If US interest rates start coming down, that will be very positive for LatAm bonds… If markets continue as they are, issuance will be up substantially”
Alejandro Capote, head of Santander’s corporate and investment banking
“Names that have not historically been active in the local market could now potentially become so”
Intrum to sell large chunk of investment portfolio to Cerberus for $785 mln