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US Treasury yields inched higher across the curve following the comments by Atlanta Fed President Raphael Bostic. He said that there was no urgency to cut rates thanks to the US economy’s strength, noting that it would likely be appropriate for the Fed to approve two 25bp rate cuts by the end of this year. He said that he does not expect rate cuts to be “back to back” and that he has penciled in the first rate cut for the third quarter. Also in terms of quantitative tightening, he said he was “hopeful” that the Fed could continue the current pace for as long as possible. Looking at credit markets, US IG CDS spreads tightened 0.5bp and HY CDS spreads were 1.4bp tighter. Equity markets closed lower with the S&P and Nasdaq down 0.1% and 0.4% respectively.
European equity markets ended mixed. Credit markets in the region saw the European main CDS spreads tighten 1bp and crossover spreads tighten by 5.3bp. Turkey’s annual inflation soared to 67% in February, above expectations of 65.7%, and bringing back concerns that their central bank may return to tightening.
Asian equity markets have opened slightly in the red today. Asia ex-Japan IG CDS spreads were 3.8bp wider. In the first day of China’s annual meet in Beijing, China set an economic growth target of ~5% for 2024, similar to last year’s goal and inline with expectations.
Adani Green raised $409mn via an 18Y bond at a yield of 6.7%, 42.5bp inside initial guidance of 7.125% area. The senior secured notes are rate Ba1/BBB- (Moody’s/Fitch). The issuer of the notes is Adani Green Energy UP Ltd/Prayatna Developers Pvt Ltd/Parampujya Solar Energy. Proceeds will be utilized in accordance with the external commercial borrowing guidelines to redeem its $500m 6.25% bonds due December 2024. The notes also have a pool protection. The notes have a weighted average maturity of 12.7Y and also have a change of control put upon a triggering event defined as a change of control together with a ratings downgrade. Below are the financial covenants on the notes:
Commonwealth Bank of Australia (CBA) raised $1.25bn via a 10Y Tier 2 bond at a yield of 5.837%, 23bp inside initial guidance of T+185bp area. The subordinated notes are rated Baa1/BBB+/A-. Proceeds will be used for general corporate purposes. Upon a non-viability event occurring, the notes are subject to exchange for fully paid ordinary shares of CBA or a write-down. While the notes are not callable, CBA may redeem them in whole but not partially for certain tax or regulatory reasons. The notes are priced ~13bp tighter to its existing 3.61% 2034s (callable in 2029) that yield 5.97% to call.
Credit Agricole raised $2.35bn via a three-part deal. It raised:
The senior-preferred notes are rated Aa3/A+/AA-. Proceeds will be used for general corporate purposes.
Dell International raised $1bn via a 10Y bond at a yield of 5.425%, 20bp inside initial guidance of T+140bp area. The senior unsecured notes are rated Baa2/BBB/BBB. Proceeds will be used to redeem a portion of their outstanding 6.020% 2026s and any remaining proceeds for general corporate purposes, including the repayment of other debt. The guarantors to the notes are Dell Technologies Inc, Denali Intermediate Inc and Dell Inc.
A new issue premium refers to the incremental higher yield (yield premium) on an issuer’s newly issued bond over bonds by the same issuer with a similar maturity. A newly issued bond by an issuer typically offers a higher yield to its own comparable bond to entice investor demand in the security. Sometimes, if an issuer does not have a comparable bond with a similar maturity, but does have a yield curve (i.e., other bonds issued across different maturities), analysts can interpolate and arrive at an estimated yield for a hypothetical comparable. However, while new issue premiums are typically the case, it is not necessary that an issuer’s new bond would always have a new issue premium.
On Cash Returns Rivaling Bonds and Over Decade on Rate-Cut Delays
William Eigen, JPMorgan Strategic Income Opportunities Fund
“I’ve never been paid so much in my career to do so little”
Ed Al-Hussainy, global rates strategist at Columbia Threadneedle
“Marginal risk attached to the dollar invested in a cash fund today is very different… reinvestment risk here is materially higher. Extending duration makes a lot of sense”
On US corporate debt euphoria could stall as Fed tightens liquidity
Matt Smith, fund manager at Ruffer
“The level of excess reserves in the system, we think, matters for risk… Liquidity is going to tighten from here… a sharp selloff is something we expect and are positioned for”
Jonathan Fine, head of IG syndicate at Goldman Sachs.
“The combination of Treasury yields still at relatively high levels and conservatively managed corporate balance sheets, is driving liquidity into high quality bonds”