Masterclass on AT1 Perpetual Bonds | Today at 5pm SG/HK
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New Bond Issues
- HDB S$ 800 mn 7Y @ 1.54%
- MUFG $ 4NC3/6NC5/11NC10 @ T+70/90/120bp area
New Bonds Pipeline
- UAE plans for $ 10/20/40Y bonds
- Tuan Sing hires for S$ bond
- Korea hires for € 3Y to 5Y bond and/or $ 10Y bond
- China plans for $4bn 3/5/10/30Y bond
- Saigon-Hanoi Bank hires for $ bond
- Burgan Bank hires for $500mn 6NC5 bond
- Kexim hires for $/€ bond
- GD-HKGBA Holdings hires for $ 2Y bond
Rating Changes
- Moody’s changes outlook on KDB Asia’s ratings to negative; affirms Aa2 ratings of Korea Development Bank and KDB Asia
- Sinic Holdings Downgraded To ‘CC’ On Imminent Default Risk; Company Stays On Watch Negative
- Fitch Downgrades Fantasia to ‘CCC-‘ on Repayment Risk, Weak Transparency
- Jamaica Outlook Revised To Stable From Negative; ‘B+’ Long-Term And ‘B’ Short-Term Ratings Affirmed
Q3 Update: $44.5bn Wiped Out With 75% of Dollar Bonds Ending Lower
The third quarter of 2021 was a volatile one with three-quarters of our dollar bond universe ending in the red in terms of price return ex-coupon. This is in contrast to Q2 which saw 67% of dollar bonds delivering a positive price return, reversing losses from a gloomy Q1. The somber third quarter was largely due to a massive selloff in September, which saw 86% of dollar bonds trading lower following a mixed July and August. Investors saw a solid $44.5bn wiped out from dollar bonds during the quarter, calculated as the mark-to-market loss based on the percentage change in bond prices multiplied by the amount outstanding. The 10Y US Treasury yield jumped over 20bp following the hawkish September FOMC meeting, dragging bonds across the spectrum. Further, the global impact of Evergrande and the China property market added to the negative sentiment.
As part of our quarterly report, we have added a special section with an interactive chart focusing on Chinese High Yield Real Estate Developers where we plot the change in the companies’ credit ratings through Q3 alongside the change in their dollar bonds’ Z-Spreads.
Term of the Day
Second-lien Bond
A second lien bond is a bond with a lien, that is subordinated to its senior bonds. A lien is a legal right where a creditor can claim a security interest or seize control in an asset provided by the asset’s owner. It gives a type of a legal guarantee to the lender for obligations like loan or debt repayments. Bonds typically can be either first lien, which consist of senior secured debt, or second lien, which consists of junior or subordinated debt that rank below first lien debt in the capital structure. A bondholder of a ‘first lien bond’ gets repaid before all other liens and bondholders in the event of a default. Second lien holders get repaid only after the first lien holders get paid back.
Talking Heads
On 60/40 portfolios suffering worst losses since March 2020
Seth Bernstein, president and chief executive of AllianceBernstein
The fall in both equity and bond prices in September “is a problem for all investors and not only asset managers.” “The 10-year yield can easily rise to 2 per cent,” and “investors are entering a period of much greater volatility for bonds given the uncertainty over inflation and the small amount of income they now provide,” said Bernstein. “Everyone thinks about diversifying, but it comes back to owning fixed income or being in cash,” he said. “Alternative assets and hedge funds don’t provide the scale [of diversification] to protect a portfolio for many investors.”
“Our forecasts today tell us that investors shouldn’t expect the next decade to look like the last, and they’ll need to plan strategically to overcome a low-return environment.”
“Bond yields appear to be preparing for an eventual pull back by the Fed while equities could rebound briefly on upcoming strong earnings reports.” “October can often be a volatile month for financial markets as companies acknowledge they can’t all make their original forecasts for the year.”
On overdue correction in recent bond market selloff
Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets
“I don’t think there’s really anything particularly fundamental going on.”
In a report by analysts at Cornerstone Macro
“It’s very hard, mathematically, to contemplate, say, a 3% 10-year Treasury yield when the nominal neutral rate is below 2%.”
On covid-related losses for airlines exceeding $200 billion – Willie Walsh, IATA Director General
Top Gainers & Losers – 05-Oct-21*
