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US Treasury yields jumped 4bp higher cross the curve as US retail sales and PPI data rose in August by more than forecasts. Retail Sales was up 0.6% beating estimates of a 0.1% increase and core retail sales improved 0.2%, better than forecasts of -0.1%. PPI came at 1.6% higher than estimates of 1.3% and core PPI was also stronger at 2.2%. Also, jobless claims for the prior week came at 220k, better than estimates of 225k. IG CDS spreads were 1.1bp tighter while HY spreads tightened by 5.4bp. The S&P and Nasdaq moved higher by ~0.8%.
European equity markets ended higher too. The ECB hiked its policy rates by 25bp, a tenth consecutive rate rise. The ECB’s deposit rate now stands at 4%. ECB president Christine Lagarde hinted that rates may have peaked, prompting a 5-6bp move lower in German bond yields. She said that rates “have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. In credit markets, European main CDS spreads were tighter by 1.5bp with crossover spreads tightening 7bp. Asian equity markets have opened broadly mixed this morning while Asia ex-Japan CDS spreads tightened 1.7bp yesterday.
Korea Southern Power raised $300mn via a 3Y bond at a yield of 5.578%, 40bp inside initial guidance of T+130bp area. The senior unsecured bonds have expected ratings of Aa2/AA- (Moody’s/Fitch) and received orders over $2bn, 6.7x issue size. Asset and fund managers were allocated 52%, banks, central banks and official institutions took 34%, and other financial institutions made up the remaining 6%. Asia Pacific investors made up 69% of orders, with the rest from EMEA. Proceeds will be used for general corporate purposes, including the repayment of existing debt and payment of capital expenditures particularly with respect to the generation of LNG-powered energy and renewable energy. The proceeds will specifically not be used for any purpose pertaining to the construction of new coal-fired power generation units. The new bonds are priced 10.2bp tighter to its existing 0.75% green 2026s that yield 5.68%.
Bangkok Bank raised $1.25bn via a two-part deal. It raised $500mn via a 5Y bond at a yield of 5.394%, 37bp inside initial guidance of T+135bp area. It also raised $750mn via a 10Y bond at a yield of 5.568%, 37bp inside initial guidance of T+165bp area. The new 5Y bonds are priced 1.6bp tighter to its existing 4.45% 2028s that yield 5.41%. The senior unsecured bonds have expected ratings of Baa1/BBB+. Proceeds will be used for general corporate purposes.
Citigroup raised $1.5bn via a PerpNC5 bond at a yield of 7.625%, 25bp inside initial guidance of 7.875% area. The junior subordinated bonds have expected ratings of Ba1/BB+/BBB-. Proceeds will be used for general corporate purposes. The new bonds are priced 41.5bp wider to its existing 7.375% Perps that yield 7.21%.
The deposit facility rate (DFR) is one among the three key interest rates set by the ECB. This rate defines the interest rate that banks receive on the surplus liquidity that they deposit overnight in an account with a national central bank. The Eurosystem has several national central banks with ECB being the prime central bank that works with the other national central banks of all EU countries. There are two other key interest rates that the ECB governs – the rate on main refinancing operations (MROs) and the rate on the marginal lending facility (MLF). The MRO rate refers to the cost of borrowing for banks from the central bank for a period of one week. The MLF rate refers to the overnight rate that banks can borrow at from the central bank.
Following yesterday’s rate hike by 25bp, the current DFR is at 4%, with the MRO rate at 4.50% and MLF rate at 4.75%.
On Fiscal Policy Is Bigger Bond Risk Than Fed – Pimco’s Richard Clarida
“If rates do move up, I don’t think it’s going to be because of the Fed, it’s going to be because of the fiscal dysfunction in Washington. Even though the Fed’s very powerful, it’s not the only driver of rates and fiscal policy is also a factor as well… I learned when I was vice chair in the fall of 2018, it’s in the background until it’s not and markets can suddenly start paying a lot of attention to QT”
On Not Wanting to Hold Bonds, Cash ‘Is Good’ – Bridgewater Associates Founder, Ray Dalio
“I don’t want to own debt, you know, bonds and those kinds of things. Temporarily right now, cash I think is good… I personally believe that the bonds, longer term, are not a good investment”… when debt becomes a big share of the economy, the situation “tends to compound and accelerate” as interest payments also grow. “We’re at that turning point of acceleration.”
On China Home Prices Dropping at Faster Pace Before Fresh Stimulus – Moody’s
“While the Chinese government has recently strengthened policy support for the property sector, we expect the impact on property sales to be short-lived and differentiated between tiers of cities”
Moody’s cuts China property sector’s outlook to negative
Ghana Renews Bond Exchange Offer to Improve Debt Sustainability