US Treasury yields jumped higher by over 5bp after Fed officials Loretta Mester and James Bullard came out with hawkish statements. In particular, Mester said that she “saw a compelling economic case for a 50bp increase” based on the incoming data. The peak Fed funds rate also jumped by 5bp to 5.29% for the July 2023 meeting. With a 25bp hike in March being priced in, markets are now also pricing in a possibility of a 50bp hike next month. CME probabilities show that the chance a 50bp hike in March has risen to 18% from 9% yesterday. Besides, markets are expecting another 25bp hike in May with a 76% probability. Broadly, US 10Y and 30Y yields are now at levels seen in the beginning of the year, whereas the 2Y yield is ~24bp higher this year. US IG CDS spreads widened by 2.2bp while HY spreads were 14bp wider. Equity indices were fell with the S&P and Nasdaq down by 1.4% and 1.8% respectively.

European equity markets ended higher. The European main CDS spread tightened 0.4bp while crossover CDS spreads tightened 2.7bp. Asian equity markets have opened lower today. Asia ex-Japan CDS spreads were 0.8bp tighter.

New Bond Issues

New Bond Issues 17 Feb 23

BNP Paribas raised €1bn via a 6NC5 bond at a yield of 3.916%, 12bp inside initial guidance of MS+90bp area. The senior preferred bonds have expected ratings of Aa3/A+/AA-, and received orders over €1.3bn, a bid-to-cover ratio (Term of the Day, explained below) of 1.3x. The current coupon of 3.875% is fixed until the optional redemption date on 23 February 2028. If not called, the coupon resets to 3m Euribor+78bp quarterly. The new bonds are priced 20.4bp tighter to its existing 4.375% 2029s that yield 4.12%.

AT&T raised $1.75bn via a 3NC1 bond at a yield of 5.539%, 15bp inside initial guidance of T+135bp area. The senior unsecured bonds have expected ratings of Baa2/BBB/BBB+. Proceeds will be used to repay a portion of the outstanding $2.5bn Term Loan Agreement maturing on 16 February 2025. The new bonds are priced at a new issue premium of 27.9bp to its existing 7.125% 2036s that yield 5.26%. 


New Bonds Pipeline

  • REC hires for $ Long 5Y Green bond


Rating Changes

  • Moody’s upgrades Coty’s CFR to Ba3; outlook stable
  • Fitch Downgrades China Grand Auto to ‘CCC+’

Term of the Day

Bid-to-Cover Ratio

Bid-to-cover is a ratio of the number of bids or orders received for a particular security issuance vs. the amount issued. The bid-to-cover ratio indicates the demand for an issuance – higher the ratio, higher the demand and lower the ratio, lower the demand.


Talking Heads

On Fed officials saying more rate hikes key to reducing inflation – Fed’s Loretta Mester

“The incoming data have not changed my view that we will need to bring the fed funds rate above 5% and hold it there for some time… I saw a compelling economic case for a 50bp increase… I was an advocate for a 50bp point hike and I argued that we should get to the level of rates the committee viewed as sufficiently restrictive as soon as we could.”

On Predicting Extended Period of Elevated Rates – Blackstone’s Jonathan Gray

“It feels to me more like what we experienced in the early-2000 period where we had technology stocks that had run up too much, we had a Fed-induced slowdown that ended up being shallow and we then came out of it”

On Urging More Hikes to Ensure Disinflation Continues – Fed’s Bullard

“Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low… In part due to front-loaded Fed policy during 2022, market-based measures of inflation expectations are now relatively low”


Top Gainers & Losers – 17-February-23*

BondEvalue Gainer Losers 17 Feb 23

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