US markets pulled back slightly a day after reaching record level with the FOMC meeting got underway. S&P and NASDAQ were down 0.2% and 0.7% respectively. Tech weighed down on the indices, down 0.6% while Energy was up 2.1% providing support. Tesla was down 3% and Apple and Microsoft were down 0.6% each. US producer prices saw the fastest increase on record when it registered a gain of 6.6% YoY. However, retail sales were lower by 1.3%, against estimates of 0.6%. US 10Y Treasury yields were flat at 1.5%. European markets rallied with DAX, CAC and FTSE up 0.4% each. Spreads widened marginally – US IG and HY CDS widened 0.04bp and 0.2bp respectively. EU main and crossover CDS also widened 0.5bp and 3.7bp respectively. In the Gulf, the Saudi TASI reversed its gains and was down 0.8% while ADX was up 0.1%. In Latam, Brazil’s Bovespa was down 0.1%. Asian markets started cautiously and are now down ~0.5% with Shanghai down 0.8%. Asia ex-Japan CDS spreads were flat.
Navigating The Bond Markets by Leveraging the BEV App
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New Bond Issues
eHi Car Services tap of $ 7.75% 2024s IPG 7.2% area, alongside tender offer
Wipro $ 5Y benchmark Yankee IPG T+110 area
Gajah Tunggal $ 5NC2 bond IPG 9.375% area
Macquarie Group $2.25bn via a three-trancher. It raised:
- $950mn via a 6.25NC5.25 bond at a yield of 1.629%, 25bp inside initial guidance of T+105bp area
- $300mn via a 6.25NC5.25 Floater at a yield of SOFR+92bp as compared to initial guidance of SOFR equivalent
- $1bn via a 11NC10 bond at a yield of 2.691%, 24bp inside initial guidance of T+140bp area.
The bonds are unrated and received orders over $5.7bn, 2.5x issue size. The group is rated A3/BBB+/A-.
China Aoyuan Group raised $200mn via a 3Y non-call 2Y (3NC2) bond at a yield of 8.25% unchanged from initial guidance of 8.25% area. The bonds have expected ratings of BB, and received orders over $1bn, 5x issue size. Proceeds will be used for debt refinancing. Final pricing was wider than the 7.7% fair value estimate calculated by CreditSights, referencing Aoyuan’s 6.35% 2024s and 5.98% 2025s. The bonds were priced at a new issue premium of 19bp over its existing 6.35% 2024s callable in February 2023 yielding 8.06%.
ANZ New Zealand Intl Ltd (London Branch) raised $1bn via a 5Y bond at a yield of 1.282%, 25bp inside initial guidance of T+75bp area. ANZ Bank New Zealand is the guarantor. The bonds have expected ratings of A1/AA–/A+, and received orders over $2.8bn, 2.8x issue size. Proceeds will be used for general corporate purposes. The bonds delivered the tightest spread for a New Zealand five-year bank deal in the Yankee market as per IFR.
Dubai Aerospace raised $1bn via a 3Y bond at a yield of 1.74%, 35bp inside initial guidance of T+175bp area. The bonds have expected ratings of Baa3/BBB-. DAE Funding is the issuer and DAE is guarantor and is issued off DAE’s global medium term note programme.
Dubai Islamic Bank (DIB) raised $1bn via a 5Y Sukuk at a yield of 1.959%, 25bp inside initial guidance of T+135bp area. The bonds received orders over $2.8bn, 2.8x issue size.
New Bond Pipeline
Term of the Day
Yield To Worst
Yield to worst (YTW) is a useful metric to track and compare bonds that have a call option. For non-callable bonds, there is a single measure of yield i.e. yield to maturity (YTM). Callable bonds have an additional measure of yield called yield to call (YTC), which calculates the bond’s yield with the assumption that the bond will be called on the bond’s call date. YTW is the lower of YTM and YTC, making it the conservative measure of yield.
The Bloomberg Barclays HY Index YTW fell to a new record low of 3.84%.
On the view that bank dividend restrictions should be lifted soon – Andrea Enria, European Central Bank Supervisory Board Chairman
“We will exit from these dividend recommendations, hopefully soon.” “We have tabled a decision at our board on July 23 and we will communicate shortly after that.” “It’s clear that there is still a lot of uncertainty and credit risk has not materialized for the banks, in the books of the banks, so prudence should still be a polar star in the coming months.” “We clarified that next year there would be only qualitative reflection of the outcomes of the stress test and possibly only an indirect impact via the scores on the pillar 2 requirement. But gradually we will get into treating climate risk as any other risk, so with a reflection in pillar 2 requirements.”
“Spreads can go tighter, though not meaningfully tighter.” “If nominal rates were to move meaningfully higher on an eventual Federal Reserve move, would those … who have ‘vacationed’ in high yield return to their home markets? Probably some would.”
“I’m pleased to say that we are seeing progress on Chad. I hope we would be successful to bring these cases to fruition so that other countries – because it is not only these three countries that are in a difficult situation – step forward early.” “In a highly diversified environment with so many different private creditors and other creditors, I must admit, we are not where we should be.” “We have to continue to work relentlessly, hopefully building from the DSSI (Debt Service Suspension Initiative) to the Common Framework to a much more prudent approach to debt restructuring, and at the Fund this is a top-of-mind priority.”
“These banks have to demonstrate and to prove that they have taken all the necessary remedial actions which have been demanded by the Commission when deciding about these cases.” “We now expect the submission of the necessary information and then of course we have to analyze and assess it. I cannot predict how long it takes.” It is in the EU’s “interest to include all the key players and banks which have qualified themselves for the primary dealer network,” Hahn said. “But of course the legal aspects have to be respected.”
“Cash wealth management products are riskier and less transparent,” since they “invest in lower credit quality assets, apply higher leverage, use longer maturity and make less disclosure.”
“ETFs that contain suspended shares may be difficult to trade for many market makers, making the funds less liquid for investors.” “We’re supportive of index providers dropping these names from their selections.”
Top Gainers & Losers – 16-Jun-21*