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US Treasury yields jumped higher by 7-8bp across the curve. Primary markets saw a flurry of new issuances with US high grade issuers raising over $29bn yesterday. The peak Fed Funds Rate was 1bp higher at 5.30%. Markets await the ISM Manufacturing print later today, followed by the FOMC minutes. US credit markets saw IG CDS spreads widen by 1.8bp and HY spreads widen by 8bp. US equity markets ended lower yesterday to begin the new year, with the S&P falling 0.6% and Nasdaq falling 1.6%.
European equity markets closed lower too. Credit markets in the region saw the European main CDS spreads widen by 4.2bp and crossover spreads widen by 14.8bp. Several European banks came to the primary markets to issue debt, including the likes of UBS, Lloyds, Santander, Credit Agricole and BNP Paribas (scroll lower for details on the pricing of the new issuances). Asian equity markets have opened weaker again today. Asia ex-Japan IG CDS spreads widened by 2bp.
UBS raised $4bn via a two-trancher. It raised $1.75bn via a 6NC5 bond at a yield of 5.428%, 28bp inside initial guidance of T+180bp area. It also raised $2.25bn via a 11NC10 bond at a yield of 5.699%, 28bp inside initial guidance of T+205bp area. The senior unsecured notes are rated A3/A-/A.
BNP Paribas raised €1.75bn via 6NC5 bond at a yield of 5.176%, 25bp inside initial guidance of T+150bp area. The senior preferred bonds are rated Aa3/A+/AA- (Moody’s/S&P/Fitch).
Lloyds raised ~$4.35bn via a dual-currency issuance. As part of its $3.8bn three-tranche dollar bond issuance, it raised:
The senior unsecured notes are rated A3/BBB+/A. Proceeds will be used for general corporate purposes.
It also raised €500mn via a 10.25NC5.25 Tier 2 bond at a yield of 4.49%, 30bp inside initial guidance of MS+235bp area. The subordinated notes are rated Baa1/BBB-/BBB+ and received orders of over €2.4bn, 4.8x issue size. If not redeemed at the first reset date of 5 April 2029, the coupon will reset to the 5Y MS+205bp. The Issuer may redeem the Tier 2s in whole (but not in part) at its own discretion on any day from (and including) 5 January 2029 to (and including) 5 April 2029.
Santander raised ~$5.1bn via a dual-currency issuance. It raised $1bn via a 6NC5 bond at a yield of 6.17%, 25bp inside initial guidance of T+250bp area. The senior unsecured bonds are rated Baa2/BBB+/BBB+. Proceeds will be used for general corporate purposes. The new bonds are priced at a new issue premium of 27bp over its 6.656% bonds due June 2029 that yield 5.9%
As part of its €3.75mn euro-denominated three-trancher, it raised:
The senior preferred bonds are rated A2/A+/A- and received orders over €5.4bn, 1.4x issue size.
Credit Agricole raised €1.25bn via a PerpNC6.2 bond at a yield of 6.5%, 25bp inside initial guidance of 6.75% area. The subordinated bonds are rated BBB-/BBB (S&P/Fitch) and received orders over $2.6bn, 2.1x issue size. The bond’s coupons are payable quarterly. If the notes are not called by 23 March 2030, they reset to the 5Y Euribor ICE Swap Rate plus 420.7bp then and every five years thereafter.
Mexico raised $7.5bn via a three tranche issuance. It raised:
The bonds are rated Baa2/BBB/BBB-. Proceeds will be used for the government’s general purposes.
Rabobank raised $2.25bn via a three-trancher. It raised:
The senior preferred bonds are rated A2/A+/AA-. Proceeds will be used for general corporate purposes
Ford Motor Credit raised $2.5bn via a two-trancher. It raised $1.5bn via a 3Y bond at a yield of 5.846%, 25bp inside initial guidance of T+200bp area. It also raised $1bn via a 7Y bond at a yield of 6.099%, 25bp inside initial guidance of T+235bp area. The senior unsecured notes are rated Ba1/BBB-/BBB-. Proceeds will be used for general corporate purposes. The new 3Y bond was priced a new issue premium of ~7bp over its 4.95% bonds due May 2027 that yield 5.77%. The new 7Y bond was priced at a new issue premium of 9bp over its 3.625% bonds due June 2031 that yield 6%.
SK Hynix hires for $ 3Y/5Y bond
Senior non-preferred (SNP) notes are type of debt security that banks issue as part of their Tier 3 capital. These bonds have an inherent bail-in feature where in the case of bankruptcy, creditors holding these notes may be subject to conversion into shares. In a liquidation scenario, SNP bonds are ranked higher than Subordinated Bonds. However, they rank inferior to Senior Preferred Bonds or Senior Unsecured Bonds.
On Pakistan Bond Rally May Extend Into 2024 on IMF Hopes
Johnny Chen, fund manager at William Blair
“They seem committed to this IMF program, and that is a significant point because it suggests there is a big likelihood for them to get another bailout… strong potential for reforms to pick up momentum after the elections”
On Banks Seeing IG Bonds Beating HY for First Time Since 2020
Morgan Stanley strategist, Vishwas Patkar
‘It comes down to the macro environment. We think the economy will see a soft landing, but that happens with bumps along the way”… better upside for shorter-dated debt rather than longer-duration credit.
Noel Hebert, credit strategist for Bloomberg Intelligence
“Continued compression in Treasury yields as a result of weakening macroeconomic conditions will facilitate strong duration-related returns, if realized”
MUFJ strategists
“From current levels, we see limited upside in total returns from pure-play credit products”
On Treasuries Starting Year on Back Foot as Global Rate-Cut Bets Ease
Gennadiy Goldberg, head of US interest rates strategy at TD Securities
“With lots of corporate deals already announced today, I think the supply story is behind the move”
Emmanouil Karimalis, rates strategist at UBS Group
“The market should probably have a bit more of a bearish tone going forward”
Jane Foley, head of FX strategy at Rabobank
“The market may be looking ahead to Fed rate cuts this year but with so many already priced in, it is very likely that there will be a moderation”