S&P ended 0.8% higher to a new closing high while the Nasdaq gained 0.5% ahead of the quarterly earnings season which sees banking majors JPMC, Wells Fargo, Goldman Sachs, Citigroup and Morgan Stanley report on Wednesday and Thursday. US 10Y Treasury yields rose 2bp to 1.65%. European equities were mixed with FTSE down 0.4% while DAX and CAC were 0.2% and 0.1% higher. US IG CDS spreads were 0.1bp tighter and HY was 2.1bp wider. EU main CDS spreads were 0.2bp wider and crossover spreads widened 1.5bp. Asian equity markets are down over 0.6% and Asia ex-Japan CDS spreads were 2bp wider. Asian primary markets are off to a busy start to the week with 6 new dollar deals launched including Genting, CK Hutch and Mandiri.
New Bond Issues
- Genting Malaysia $ 10Y at T+260bp area
- Bank Mandiri $ 5Y sustainability note at T+175bp area
- CK Hutchison $ 5Y/10Y/20Y bonds atT+80bp/T+125bp/T+130bp areas
- Petron $ senior PerpNC5 at 6.3% area
- Metallurgical Corporation of China $ senior PerpNC3 at 3.3% area; books $1.3bn
- Kia $ 3Y/5.5Y green bond at T+110bp/T+125bp areas
New Bond Pipeline
- China Water Affairs Group $ green bond
- BOC Aviation $ bond
- Putian State-owned Asset Management $ bond
- IRFC $ 5Y bond
- Copper Producer First Quantum Minerals Upgraded To ‘B’ On Deleveraging And Adequate Liquidity; Outlook Stable
- MDC Holdings Inc. Upgraded To ‘BBB-‘ From ‘BB+’, Outlook Stable; Senior Note Rating Raised To ‘BBB-‘ From ‘BB+’
- Moody’s downgrades Sritex to Ca; outlook negative
- Outlook on ChemChina Revised To Positive; Outlook on Bluestar, Sinochem HK, SIC Revised To Developing; Ratings Affirmed
- China Huarong Asset Management, Subsidiaries Placed On CreditWatch Negative Following Delayed Results
- Syngenta AG Outlook Revised To Positive On Parent ChemChina’s And Sinochem Combination Plans; Affirmed At ‘BBB-/A-3’
- Fitch Affirms Brighthouse’s Ratings; Outlook Revised to Stable
- Fitch Affirms Arcos Dorados at ‘BB’; Rating Outlook Revised to Stable
- Fitch Revises Outlook on DBS Hong Kong’s IDR to Stable; Affirms ‘AA-‘ Rating
- Fitch Revises Outlook on Taikang Insurance Group to Stable; Affirms Ratings
- Moody’s withdraws the Government of Latvia’s short-term MTN program rating for its own business reasons
The Week That Was
US primary market issuances rose to $31.5bn, up over 2x vs. $15bn the week prior. The rise in issuance can be attributed to both IG at $16.3bn and HY at $12.94bn vs. $6.4bn and $7.8bn respectively. The largest deals in the IG space were led by auto majors Toyota and GM raising $2.5bn and $2.25bn respectively via three-tranchers. In the HY space, Merck led the table, raising $4.1bn followed by Newscorp’s $1bn issuance. In North America, there were a total of 67 upgrades and 24 downgrades combined, across the three major rating agencies last week. LatAm saw $3.26bn in deals last week vs. $2bn in the week prior with Mexico as the only issuer raising $3.26bn via a 20Y bond offering. EU Corporate G3 issuance saw an increase of ~2x last week to $29bn from $15bn in the week prior – KfW raised $9.75bn via EUR and USD issuances followed by France’s CFF and BNP raising €1.5bn and €1.25bn. GCC and Sukuk G3 issuance was muted with minor deals worth $40mn vs. $2.6bn in the week prior. APAC ex-Japan G3 issuances dropped to $2.4bn vs. $9.8bn in the prior week. Issuances were led by UOB’s $1.5bn dual-trancher and Kores’ $500mn deals while Redco and Zhenro Properties’ raised $220mn each. In the Asia ex-Japan region, there were 10 upgrades and 9 downgrades combined, across the three major rating agencies last week.
Term of the Day
Kungfu bonds are offshore USD denominated bonds issued by Chinese issuers, aka Chinese dollar bonds. These issuances offer a source of funding from offshore markets for local borrowers and help build an international investor base. The Kungfu bond market has been primarily dominated by government related institutions, banks and real estate developers. Bloomberg reported on Friday that among the 1,000+ Kungfu bonds they track, Huarong’s bonds fell the most.
Daniel Tenengauzer, head of markets strategy at Bank of New York Mellon Corp
“Green bonds are used by borrowers to cash in on lower borrowing costs,” said Dowding. “I don’t see what difference that’s making at all. I’m not sure that’s making the impact that people would like to see.”
“Our policy is to treat green bonds no differently from vanilla bonds from the same issuer,” given the risk of default is the same regardless of what the money is funding, he added.