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US Treasury yields were stable yesterday. US PPI YoY rose 2.1%, higher than the prior 1.6% and slightly lower than the expected 2.2%. Core PPI YoY rose 2.4%, higher than both, the prior number and expectations of 2.0% and 2.3% respectively. Initial jobless claims for the previous week rose 211k, better than the expected 215k. Several Fed speakers came out with their take on policy rates following the CPI data released on Wednesday.
New York Fed President John Williams said, “There’s no clear need to adjust monetary policy in the very near term”. While he noted that the recent bumps were not unexpected, if there was something to be surprised about, it was over how fast price pressures eased last year. Adding to the same view was Boston Fed President Susan Collins who said, “Recent data suggest it may take more time than I had previously thought to gain greater confidence in inflation’s downward trajectory”. Similarly, Richmond Fed President Thomas Barkin also noted that the recent CPI data “did not increase” his confidence about inflation easing on a broader basis. US IG CDS spreads tightened 0.2bp and HY spreads widened 3bp. The S&P and Nasdaq rose by 0.7% and 1.7% respectively.
European equity indices ended lower. European IG CDS spreads widened 1.5bp and crossover spreads were 10bp wider. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads were 2.7bp wider.
El Salvador raise $1bn via a 6Y bond at a yield of 12%, inside initial guidance of low 12% area. The notes are rated B-/CCC+ (S&P/Fitch). The coupon is 9.25% and the notes amortize beginning in 2028. If El Salvador fails to get at least two upgrades to a rating of B (currently at Caa3/B-/CCC+), or strike a deal for a loan package with the IMF by October 2025, the coupon will step-up to 4% from 0.25%. Proceeds will be used to (a) fund the repurchasing of notes tendered under its tender offer, (b) make interest and principal payments under its 2025s not otherwise repurchased through their maturity date, (c) pay direct obligations of the Ministry of Finance in accordance to its approved budget.
Transocean raised $1.8bn via a two-tranche deal. It raised $900mn via a 5NC2 bond at a yield of 8.25%, inside initial guidance of 8.25-8.50%. It raised $900mn via a 7NC3 bond at a yield of 8.50%, inside initial guidance of 8.50-8.75%. The priority guaranteed notes are rated Caa1/B-. Proceeds will be used to fund the tender offer buyback of its 11.5% 2027s and 7.25% 2025s. Proceeds will used for redeeming other existing priority guaranteed notes. The bonds have a change of control put at 101. The company was upgraded by Moody’s to B3 from Caa1 citing a “good runway” that Transocean has to “achieve meaningful deleveraging over the next several years”.
Huzhou Moganshan Hi-Tech raised $210mn via a 3Y bond at a yield of 5.48%, 42bp inside initial guidance of 5.90% area. The notes are unrated. Proceeds will be used for repayment of the existing medium to long-term offshore debts due in July 2024.
Amortizing bonds are debt instruments that pay both coupons and principal through the life of the bond. Unlike straight bonds that pay back the principal as a bullet payment at maturity, amortizing bonds pay back principal at regular intervals based on a predefined schedule prior to the maturity date. Since the principal is retired slowly over the life of the bond, the weighted average life (WAL) is keenly looked out for. Amortizing structures are more common in loans and mortgages.
On IMF head says higher US rates could become a worry if they persist
IMF chief Kristalina Georgieva
“Higher interest rates for the rest of the world is not great news. Higher interest rates make the U.S. more attractive so financial flows come here and that leaves the rest of the world somewhat struggling… If it continues for a long time, it could become a bit of a worry in terms of financial stability”
On US Treasury warns creditors against free-riding on aid to developing countries
Treasury Undersecretary Jay Shambaugh
“When the IMF and MDBs support countries’ reforms and investment plans, Fund shareholders should not be withdrawing their own financing… No individual creditors should be free-riding by pulling funds out of a country while it is implementing IMF- and MDB-supported reforms”
On More Companies Are Defaulting Over and Over Again, S&P
Nicole Serino, director of credit research, S&P
“These capital structures were set up during times of lower rates and in anticipation of lower rates. You saw that bubble grow, and grow, and grow.”