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US Treasury yields stayed flat across the curve. Richmond Fed’s Thomas Barkin said that inflation is close to target but not there yet. Another Fed governor Michelle Bowman said that she does not see rate cuts as appropriate “in the immediate future”, noting that the benchmark lending rate is in a good place to keep downward pressure on inflation. Markets await the CPI data later today, with forecasts pointing to a drop to 2.9% YoY, the first reading below 3% since March 2021 and from 3.4% in December. Looking at credit markets, US IG and HY CDS spreads tightened 0.5bp and 2.5bp respectively. S&P fell 0.1% and Nasdaq fell 0.3%
European equity markets ended higher. Credit markets in the region saw the European main CDS spreads tighten by 1.4bp and crossover spreads tightened by 6.9bp. Asian equity markets have opened weaker today. Asia ex-Japan IG CDS spreads tightened by 0.1bp.
Kenya raised $1.5bn via a 7Y bond at a yield of 10.375%, 62.5bp inside initial guidance of 11% area. The bonds are rated B/B (S&P/Fitch). Proceeds will be used to finance the purchase of the notes under its tender offer.
BNP Paribas raised $3.25bn via a two-part offering. It raised $1.5bn via a 6.25NC5.25 bond at a yield of 5.497%, 32bp inside initial guidance of T+170bp area. It also raised $1.5bn via a 11NC10 bond at a yield of 5.738%, 32bp inside initial guidance of T+190bp area. The senior non-preferred notes are rated Baa1/A-/A+.
Fitch Upgrades United Airlines’ IDR to ‘BB-‘; Rates Term Loan ‘BB+’/’RR2’
A tender offer is an offer made by an issuer to bondholders to buyback their bonds. In return, the bondholders could get either cash or new bonds of equivalent value at a specified price. The issuer does this to retire some of its old debt and can use retained earnings to fund the purchases without affecting the liquidity position of the company. Tender offers have a deadline date before which holders must tender their bonds back.
On DoubleLine Trimming Riskiest High-Grade Bonds on Rates Concerns
Robert Cohen, head of global developed credit at DoubleLine
“I don’t think rate volatility is over. We have tight spreads so there’s not a lot of room for error. If rate volatility continues, I think spread volatility might pick up… Fed is not going to be able to be very aggressive with rate cuts
“The market should price in some risk of future hikes – look to 1998… If inflation does not return to a consistent 2% the upside tails around future Fed hikes should increase from this very depressed level”
On urging central banks to move cautiously on any rate cuts – IMF’s Gita Gopinath
“It is important to move cautiously on rate cuts, because … you have to once you have an interest rate cut, the direction of travel becomes very clear… end up with a lot more financial easing than you intended to have.
On ECB’s New Top Regulator Wanting Banks to Plan for Emerging Risks – Claudia Buch
“Underscores the need for banks not only to respond to emerging risks, but to anticipate them too… high degree of uncertainty cannot be captured by classical risk models… Banks need to be well-capitalized to deal with unforeseen events”