Wall Street ended lower at the close of last week, which was dominated by the FOMC meeting update. S&P and Nasdaq were down 1.3% and 0.9% respectively resulting in weekly losses of 1.9% and 0.3% respectively. Sectors across closed in the red with Energy and Financials leading the drop, down ~2.5%. The yield curve bear flattened (Term of the Day, explained below) on Friday as the US 10Y Treasury yields dipped ~11bp to 1.41% while the shorter dated 2Y and 5Y yields moved higher. European markets also closed lower by ~1.5%. UK’s May retail sales were down 1.4% against expectations of an expansion of 1.6%. Germany’s Producer Price Index (PPI) rose 1.5% in May compared to a forecast of 0.7%. US IG and HY CDS spreads widened 1.3bp and 5.2bp respectively. EU main and crossover CDS widened 1bp and 5.6bp respectively. Saudi TASI fell 0.6% while Brazil’s Bovespa closed 0.3% up. Asian markets opened in the red. HSI was down 1% while Shanghai was marginally down 0.1%. Asia ex-Japan CDS spreads were 0.4bp tighter.
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New Bond Issues
- Hopson Development $ 2.5Y at 7.1% area
Jinan Hi-Tech Holding raised $170mn via a 3Y bond at a yield of 2.5%, 50bp inside initial guidance of 3% area. The bonds have expected ratings of BBB.
New Bond Pipeline
- China Oil and Gas Group hires for $ bond issue
- BOCOM International Holdings hires for $ 5Y bond issue; calls today
- RHB Bank hires for $ 5Y or 5.5Y bond offering; calls today
- Mongolia hires for $ senior bond; calls starting today
- CCB (Europe) hires for EUR 3Y bond
- Shipping Co. Navios Maritime Partners Upgraded To ‘BB-‘ By S&P On Navios Maritime Containers Acquisition; Outlook Positive
- Sichuan Languang Rating Lowered To ‘CCC-‘ By S&P On Heightening Nonpayment Risk; Outlook Negative
- Fitch Downgrades Alpha Holding to ‘C’ on Missed Interest Payment
- Alpha Holding S.A. de C.V. Downgraded To ‘CC’ From ‘CCC’ by S&P On The Exercise Of 30-Day Grace Period For Interest Payment
- Moody’s downgrades Globo’s ratings to Ba2; negative outlook
- Moody’s changes outlook on Vodafone’s ratings to stable; affirms ratings at Baa2
- Fitch Revises the United Kingdom’s Outlook to Stable; Affirms at ‘AA-‘
- Fitch Revises the Bank of England’s Outlook to Stable; Affirms at ‘AA-‘
- ICICI Bank Outlook Revised To Stable From Negative By S&P; Ratings Affirmed
- Fitch Revises Outlook on Logan to Positive; Affirms at ‘BB’
- Fitch Assigns ‘BBB-‘ Rating to JBS USA Lux S.A
The Week That Was
Term of the Day
Bull flattening refers to a change in the yield curve where long-end rates move down faster than short-end rates. This not only has a flattening effect on the entire yield curve but also has a net effect of interest rates moving lower and bond prices moving higher. If the yield curve moves lower and bond prices move higher, it is considered a bull move, while the opposite is a bear move. In last Friday’s move 2Y treasury yields were flat while the 10Y and 30Y yields fell 11-12bp making the 2s10s and 2s30s yield curve flatter led by the 10Y and 30Y yields, a bull flattening move. This can be seen in “The Week That Was” US Treasury Curve chart.
On US Treasury yield curve flattening as Fed seen more proactive on inflation
“The Fed has been controlling the transitory narrative which has provided confidence to corporate bond investors.” “After all, corporate bond investors are more focused on the expected strong growth path.”
“For the time being people are not at all fearing the price action of a move higher in yields.” “Companies are doing really well and we are seeing a meaningful recovery in earnings.”
“It’s very important for us that the yield we receive on a high-yield bond offers an appropriate level of compensation for the credit risks of investing. When yields are as low as this, that naturally becomes harder to say.” “It’s quite simple — the lower the yield on the high yield market, the more carefully investors need to navigate the market.”