S&P was down 0.5% while Nasdaq was up 0.6% on Friday. Besides the tech sector, consumer discretionary also closed higher 0.6% while Energy and Financial were the biggest losers down 2.3% and 2%. US Treasury yields eased on Friday after a sharp climb on Thursday when the 10Y topped 1.61%. DAX, CAC 40 and FTSE closed 0.7%, 1.4% and 2.5% lower. US IG CDS spreads were 0.4bp tighter and HY was 1bp tighter. EU main CDS spreads widened 0.6bp and crossover spreads widened 2.1bp. China’s official manufacturing PMI reported a fall in February to 50.6 from January’s 51.3, lower than expectations for a smaller decline of 51.1. Asian equity markets have opened ~1.5% higher today while Asia ex-Japan CDS spreads were 2.9bp wider.
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New Bond Issues
- CMT MTN S$ 7Y at 2.3% area
- DBS $ 10NC5 Tier 2 at T+135bp area; books over $800mn
- Tainan City Development and Investment 364-day $ note at 4.6% area
New Bond Pipeline
- HCL Tech $ bond
- Microsoft $ bond alongside exchange offer
- JSW Steel $ bond
- Argentine Oil And Gas Company YPF S.A. Downgraded To ‘SD’ From ‘CC’ By S&P On Completion Of Debt Exchange Offer
- Fitch Downgrades Zhongyuan AMC to ‘BBB-‘; Outlook Negative
- Fitch Downgrades SURA Asset Management S.A. to ‘BBB’; Outlook Negative
- Moody’s affirms Ecuador’s Caa3 rating; changes outlook to stable
- Georgia Outlook Revised To Negative; ‘BB/B’ Ratings Affirmed By S&P
- Fitch Revises Kutxabank’s Outlook to Stable; Affirms at ‘BBB+’
- Canadian Tire Corp. Ltd. And CT REIT Outlook Revised To Stable By S&P On Stronger-Than-Expected Operating Results
- Terex Corp. Outlook Revised To Stable From Negative By S&P On Expected Improved Credit Metrics
- Dana Inc. Outlook Revised To Stable From Negative By S&P On Improving End Markets; Senior Unsecured Ratings Raised To ‘BB’
- Vistra Corp. ‘BB+’ ICR Placed On CreditWatch Negative By S&P On Winter Strom Uri’s Significant Impact On Its Cashflow
- Fitch Places Aviva France on Rating Watch Negative on Expected Acquisition by Aema
- Yum! Brands Inc. Operating Subsidiaries’ Senior Secured Credit Facilities Rated ‘BBB-‘ By S&P
- Fitch Affirms Yunnan Provincial Investment at ‘BBB-‘; Withdraws Ratings
The Week That Was
US primary issuances stood at $32.2bn, up 80% vs. $17.8bn the week prior. The rise in issuance can be attributed to both IG issuances, which stood at $19.7bn, up 37% WoW and HY, up over 3.5x WoW at $12.3bn. IG was led by Truist Financial’s $1.25bn deal while HY was led by Post Holdings’ $1.8bn deal. In North America, there were a total of 52 upgrades and 32 downgrades combined, across the three major rating agencies last week. LatAm saw $700mn of new deals last week vs $650mn in the week prior, with Hudbay Minerals alone raising $600mn. EU Corporate G3 saw a decrease to $19.2bn vs. $22.6bn of new bonds priced the week prior – KfW’s $4.12bn was the largest followed by Daimler’s $1.23bn and EasyJet’s €1.2bn ($1.45bn). GCC and Sukuk dollar issuances were lower at $570mn vs. $820mn in the week prior led by CBQ’s $500mn 4.5% PerpNC5 AT1. Saudi raised €1.5bn via a two-part euro denominated deal with the 3Y tranche marking the first negative yielding bond from the gulf. APAC ex-Japan G3 issuances finally saw a rise after two lacklustre weeks with $11.9bn in new deals vs. $450mn and $1.4bn in each of the prior two weeks due to the lunar new year holidays. Vedanta’s $1.2bn 4NC3.5 was the largest from the region and also the largest single issuance yet by an Indian issuer this year. That was followed by Macquarie Bank’s $1bn, Bharti Airtel’s $750mn 10.25Y senior bond with the Indian telco also raising $500mn via a PerpNC5.25. In the region, there were 5 upgrades and 4 downgrades combined, across the three major rating agencies last week.
February 2021: 66% of Dollar Bonds Traded Lower With High Yield Outperforming
The month of February was a dull month for investors as 66% of dollar bonds in our universe delivering a negative price return (ex-coupon). A sharp sell-off in US Treasuries led to a ~33bp rise in yields for both the 10Y and 30Y, which ended the month at 1.42% and 2.18% respectively. This spilled over to corporate and sovereign dollar bonds with high-rated long-dated bonds worst affected. Bloomberg had reported that for the month of February, the total return for the US High Grade Index was -2.88%, the biggest loss since March 2020. Long duration bonds of highly rated corporates like that of Apple, Amazon, Alphabet, Johnson & Johnson, Microsoft, Temasek and their like fell over 9% in the month.
While 80% of investment grade (IG) rated bonds delivered a negative price return in February, high yield (HY) bonds performed relatively better with 49% bonds ending the month lower.
Term of the Day
Nature-Performance bonds are similar to Sustainability-Linked Bonds (SLBs) but for sovereigns where countries could pay less interest on the debt if they meet environmental, nature based performance targets. While green, blue, social bonds and their like exist among sovereigns, the difference would be a reward for meeting targets in the case of nature performance bonds unlike the others. Pakistan could be first by issuing up to $1bn of nature-performance bonds this year, according to Malik Amin Aslam, a climate change adviser to PM Imran Khan. Uruguay is also exploring such bonds, its debt chief Herman Kamil said.
“Fixed-income investors worldwide — whether pension funds, insurance companies or retirees — face a bleak future,” he wrote. “Competitors, for both regulatory and credit-rating reasons, must focus on bonds. And bonds are not the place to be these days.” Buffett warned that the move by insurers and bond buyers to “juice the pathetic returns now available by shifting their purchases to obligations backed by shaky borrowers” was a concern.
“Risky loans, however, are not the answer to inadequate interest rates,” he said. “Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring that maxim.”
Nader Naeimi, the head of dynamic markets at AMP Capital Investors
“We are moving to a type of market condition that’s not for the faint-hearted,” said Naeimi, adding that he will continue betting against Treasuries. “The focus right now is the Fed and central banks. If they sound alarmed about the recent back-up in bond yields, then the curves will likely start flattening.”
Marc Ostwald, chief economist and global strategist at ADM Investor Service
“Markets are still in the mood to challenge the Fed view of running everything hot.”
Mansoor Mohi-uddin, chief economist at Bank of Singapore
“We expect the Fed to stop observing that surging yields are benign, for example by signaling it may delay tapering if bond markets remain volatile,” he said. “A shift in tone by the Fed would help stop 10-year Treasury yields rising further towards 2% in the next few months and instead stay at very low levels still to the benefit of risk assets.”
“There are two risks heading into next week,” says Goldberg. “Fed officials could simply stick to their script and suggest that the move higher in rates occurred only for good reasons. This would reward those investors positioned for shorts.”
Mohit Kumar, strategist at Jefferies
“It’s the most short since the taper tantrum of 2013, but is still not at an extreme, suggesting that momentum players have more room to add,” said Kumar. “But at this level, any move up in yields is unlikely to be at the same pace or magnitude that the market has seen this week.”
“In the absence of a more concerted effort to slow the spike in yields, emerging markets may remain under pressure,” said Gofshteyn. “Higher-yielding currencies will continue to be particularly adversely affected and duration across emerging markets is also likely to remain especially vulnerable.”
“There was no resignation submitted by the bank’s CEO,” Banco do Brasil said. “Furthermore, Banco do Brasil, has no knowledge of the sources cited by the media accounts.”
Top Gainers & Losers – 01-Mar-21*