SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

US equities slid again with the S&P down 0.5% while the Nasdaq took a bigger beating, down 2.4% as tech stocks got hammered. The tech heavy Nasdaq has now fallen 10% from its highs made last month. Utilities, financials and materials sectors outperformed. US 10Y Treasury yields were stable at 1.57%. The US House is poised to vote on the Senate’s version of the stimulus bill on Tuesday. European shares moved in the opposite direction with the DAX up 3.3%, CAC up 2.1% and FTSE up 1.3%. US IG CDS spreads were 2.5bp wider and HY was 12bp wider. EU main CDS spreads were 0.5bp tighter and crossover spreads tightened 0.6bp. Asian equity markets are lower 0.3% and Asia ex-Japan CDS spreads were up by 1.7bp. In the primary markets, India’s state-owned IRFC pulled its proposed dollar bond, which Bloomberg attributed to investors demanding a higher new issue premium.

Bond Traders’ Masterclass | 25% Discount on a Bundle of Five Sessions

Keen to learn bond market fundamentals from industry professionals? Sign up for our Bond Traders’ Masterclass that consists of five modules starting on March 24.

The modules are specially curated for private bond investors and wealth managers to develop a strong fundamental and practical understanding of bonds. Given the ultra-low interest rate environment, flurry of new bond deals particularly from junk-rated issuers and tightening credit spreads, it is now more important than ever for investors to understand bond valuation, portfolio construction and new bond issues to help them get better return for risk. The sessions will be conducted by debt capital market bankers who have previously worked at premier global banks such as Credit Suisse, Citi and Standard Chartered.

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New Bond Issues

  • China Zheshang Bank HK Branch $ 3Y at T+120bp area
  • Shaoxing Shangyu State-owned Capital Investment $ 3Y/5Y at 3.3%/3.9% areas
  • HDB Minimum S$700mn 7Y at 1.37%

New Bond Issues 9 Mar

Credit Agricole Italia raised EUR 500mn ($593mn) via a 12Y green covered bond at 0.238%, or 9bp over Mid-Swaps, just a basis point inside initial guidance of MS+10bp area. The bonds received orders over EUR 750mn ($889mn) and proceeds will be used for a green bond loan.

Temasek-backed Astrea VI has announced final guidance on its $643mn equivalent dual-currency asset backed bond offering:

  • S$382mn ($283mn) Class A-1 tranche (A+/A+) 10NC5 bond at 3%, 25bp inside initial guidance of 3.25% area
  • $228mn Class A-2 tranche (A) 10NC5 bond at 3.25%, 37.5bp inside initial guidance of 3.625% area
  • $130mn Class B tranche (BBB) 10Y bond at 4.35%, 30bp inside initial guidance of 4.65% area

Of the Class A-1 tranche, the issuer plans to allocate S$250mn to retail investors and the balance S$132mn to institutional investors. Holders of this tranche stand to receive an additional 0.5% if the underlying portfolio meets its performance target of generating over $407mn in cash. Demand for the issuance is strong, going by the order book as at Monday afternoon when orders had reached S$1.1bn, $900mn and $550mn, 2.9x, 3.9x and 4.2x for the A-1, A-2 and B tranches respectively.

 

New Bond Pipeline

  • Shaanxi Financial Asset Management $ bond
  • Sumitomo Mitsui Trust Bank $ bond
  • Zhejiang Provincial Seaport Investment & Operation Group $ bond
  • BAIC Motor $ bond
  • PTTGC $ bond
  • Woori Card $ bond
  • Delhi International Airport $ bond
  • Japfa Comfeed $ bond
  • Meinian Onehealth Healthcare $ bond
  • JSW Steel $ bond

Rating Changes

 

Term of the Day

Leveraged Loan

A leveraged loan is a loan extended to a company that has short-term or long-term debt on its books and that has a poor credit rating. S&P classifies a loan as leveraged if the issuer’s credit rating is junk (BB+ or lower) or if the rating is investment grade (BBB- or higher) but has a spread >= Libor+125bp and is secured by a first or second lien.

American Airlines’ (Ba3/B-/B-) planned $7.5bn offering includes a $2.5bn leveraged loan facility.

 

Talking Heads

On US stimulus unlikely to cause inflation problem – Janet Yellen, US Treasury Secretary

“I really don’t think that’s going to happen,” she said. Inflation before the pandemic “was too low rather than too high,” she noted. “If it turns out to be inflationary, there are tools to deal with that,” she said. “We have a K-shaped recovery going on, in which high-income people are doing much better than those at the bottom of the economic ladder — low-wage workers and minorities,” Yellen said. The problem pre-dates the coronavirus but was “made immeasurably worse by the pandemic.”

On the biggest yield-GDP gap since 1966 signalling more room for bond pain – Julian Brigden, president of hedge-fund consultant Macro Intelligence 2 Partners

“I am bearish on the bond market,” said Brigden. “We just have too much stimulus coming into the system. It’s going to combine the growth with a very rapid acceleration in inflation.” “In the old days, bond yields should equal to nominal GDP,” said Brigden. “Things are very different now. But to what degree they are different? Can you have 1% negative real yield and 10% nominal GDP?”

On the suggestion that bond yields should be allowed to move more, but not to much

Masayoshi Amamiya, Bank of Japan Deputy Governor

“A big fluctuation in interest rates could have undesirable consequences. But when it’s limited to a certain range, it’s possible to enhance bond market functions, without diminishing the monetary easing effect of our policy,” he said. “Personally, I feel yields should be allowed to move more, as long as it does not diminish the effect of monetary easing,” Amamiya said. “Some market players think the BOJ can’t and won’t ease policy further due to the side-effects of its policy. We must dispel such views,” he said.

Mari Iwashita, chief market economist at Daiwa Securities

“The BOJ probably wants yields to fluctuate a bit more. But it also wants to set a speed limit on how rapidly yields could move,” said Iwashita. “The message from the review could be pretty fuzzy.”

On China’s bond market facing demand test as refinancing surge looms – Zhou Yue, bond analyst at Zhongtai Securities

“Authorities are likely using up remaining quota from the previous year,” according to Zhou. “Local government bond supply is expected to accelerate between April and June and the central bank may have to step in with liquidity injections,” he said.

 

Top Gainers & Losers – 9-Mar-21*

BondEvalue Gainer Losers 9 Mar

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