US markets ended lower with both S&P and Nasdaq closing 0.9% in the red. Barring Healthcare which was up 0.1% all sectors ended in the red with Materials, Utilities and IT falling the most, down 2.1%, 1.6% and 1.5% respectively. European stocks finished lower too – DAX was down 1%, CAC 0.8% and FTSE 0.9% lower. Brazil’s Bovespa fell sharply by 2.1%, adding to the week’s losses. In the Middle East, UAE’s ADX and Saudi TASI lost 1% and 0.2% respectively on Sunday. With regard to Asian equity markets, Shanghai, KOSPI and Nikkei are closed today. HSI is down ~4%, with Bloomberg mentioning the fall has been driven the biggest sell-off in property stocks since May 2020 as Hong Kong’s property index is down 5.9%. US 10Y Treasury yields were 2bp reaching 1.34%. US IG and HY CDX spreads widened 0.6bp and 5bp respectively. EU Main CDS spreads were 0.4bp wider and Crossover CDS spreads widened 2.9bp. Asia ex-Japan CDS spreads widened 4.5bp.
UK’s YoY core retail sales for Aug posted -0.9% vs. 0.9% last year and much lower than the expected 2.5%. Eurozone core CPI YoY for August came at 1.6% in-line with expectations. Michigan inflation expectations for the US in September reported 4.7%, slightly higher than last months 4.6%.
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New Bond Issues
- CK Asset S$ senior PerpNC3 at 3.625% area
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Sichuan Development raised $100mn via a tap of its 2.8% 2026s bond at a yield of 2.5%, in line with final guidance, bringing the total outstanding to $500mn. The bonds have expected ratings of A- (Fitch). The bonds will be issued by Yieldking Investment and guaranteed by Sichuan Development International Holding, both wholly owned subsidiaries of Sichuan Development Holding, which has provided a keepwell.
Weifang Urban Construction and Development raised $400mn via a 3Y bond at a yield of 2.6%, a strong 70bp inside initial guidance of 3.3% area. The bonds have expected ratings of Baa3/BBB– (Moody’s/Fitch), in line with the issuer, and received orders over $1.7bn, 4.3x issue size. Proceeds will be used for project investment, working capital and offshore debt repayment. Weifang Urban Construction and Development is the largest comprehensive state-owned asset management and operating entity in Weifang city, Shandong province in China, and is responsible for major infrastructure and urban-related projects there. It is wholly owned by Weifang State-owned Assets Supervision and Administration Commission.
Chengdu Aerotropolis City Development raised $300mn via a 3Y bond at a yield of 2.8%, 60bp inside initial guidance of 3.4% area. The bonds are unrated, and received orders over $1.4bn, 4.7x issue size. Proceeds will be used for project development, repayment of debt and for working capital.
Wuxi Hengting Industrial raised $80mn via a 3Y bond at a yield of 2.05%, unchanged from final guidance. The bonds are unrated. Proceeds will be used for onshore business development and for project investment and construction. The bonds will be issued by indirect wholly owned subsidiary Sihai International Investment and guaranteed by Wuxi Hengting Industrial. The bonds are supported by a letter of credit from Bank of Jiangsu Wuxi branch.
New Bonds Pipeline
- Oxley Holdings hires for S$ tap of 6.9% 2024s bond
- Maldives’ HDC hires for $ 3Y sustainability bond
- Clover Aviation Capital hires for $ bond
- Apicorp hires for $ 5Y green bond
- Dat Xanh Group hires for $ debut bond
Rating Changes
- Fitch Downgrades Fantasia to ‘B’; Outlook Negative
- Moody’s upgrades Portugal’s rating to Baa2, changes outlook to stable from positive
- Moody’s withdraws Government of Venezuela senior unsecured ratings for business reasons
- The Chemours Co. Upgraded To ‘BB-‘ On Stronger-Than-Expected Operating Performance And Debt Reduction, Outlook Stable
Term of the Day
SGS Infrastructure Bonds
These are bonds that will be issued by Singapore to finance infrastructure projects. The Monetary Authority of Singapore (MAS), Singapore’s central bank will announce on how much it intends to raise via its inaugural SGS Infrastructure bond auction due on September 28. The tenor of the bond is 30 years and analysts expect strong demand in light of a scarcity of AAA rated government bonds with the expected yield considered to be among the highest in the segment.
Talking Heads
On Dollar Bond buyers staying upbeat amid China default drama
Kenneth Ho at Goldman Sachs
“We believe that further disruptions to the company’s property development operations can be very negative for sentiment amongst domestic property buyers and investors, and potentially spill over to the broader property sector…If politicians toe the government directives on ensuring a stable housing market, we do not expect the company’s imminent default to be too disruptive for the sector”
Preston Caldwell, economist at Morningstar
“China is now on a permanently slower growth path…We expect GDP growth to fall to 4% in 2022 and average 3.3% over the full 2019-30 period.”
Ira Kalish, economist at Deloitte Touche Tohmatsu
“the challenge will be to manage this process in a way that is not hugely disruptive to the Chinese economy. US tapering and a subsequent outflow of capital from China could lead to dampened Chinese asset prices and downward pressure on the Chinese currency.”
On Stymied Bond Bears See Spark for Higher Yields in Pivotal Week
Blake Gwinn, a strategist at RBC Capital Markets
“My view has been that the September FOMC will be a potential catalyst to get things moving toward higher yields by year-end…If that fails to materialize, I am not sure if other catalysts will get us there, and we may be stuck in range-bound trading in Q4.”
Subadra Rajappa, head of U.S. rates strategy at Societe Generale
“The dots in next week’s meeting is going to be very important, not just for 2024, but also for 2022…We believe this is an underpriced risk and bodes well for our call for higher yields.”
On Singapore’s New Long Bonds Set to Gain From Global Fear Factor
Irene Cheung, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore
“I expect decent demand. The sizes of the 15-year and 20-year auctions have been scaled back to provide room, and long-dated yields have edged higher in anticipation of the SGS Infrastructure issue.”
Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore
“If the property and tech crackdown results in credit events such as defaults, then an abrupt but painful risk re-pricing could lead to contagion”
Eugene Leow, a senior rates strategist at DBS Bank Ltd. in Singapore
“In the current environment, there is a scarcity of AAA rated government bonds. The city’s 30-year yield ranks as one of the highest in the world. In any case, concerns about lack of demand for duration proved to be unfounded”
On China’s Panda Bond Market’s Resurgence
Jiang Jiang, senior China analyst for Daiwa Securities
“There is a demand for funds ahead of Chinese business expansion in the medium to long term”
Shinichi Seki, senior researcher at the Japan Research Institute
“Bonds from foreign companies that have high credit ratings are appealing” to Chinese institutional investors”
Top Gainers & Losers – 20-Sep-21*
