Both S&P and Nasdaq ended almost flat while US 10Y yields gained 1bp to 1.67%. Focus now shifts to the upcoming earnings season to get an idea on how corporate America stands. The Fed’s March meeting minutes indicated a dovish tone similar to their meeting last month. In Europe, the DAX and CAC were marginally lower while FTSE rallied 0.9% adding to yesterday’s gains. US IG CDS spreads were 0.2bp wider and HY was 0.5bp tighter. Looking at the Bloomberg-Barclays US High Yield index, spreads measured by the Option Adjusted Spreads (OAS) are currently at a 14Y lows last seen only in 2007 before the global financial crisis.
For perspective, across US HY, the upgrade-downgrade ratio by Moody’s and S&P are at 10Y and 9Y highs of 2.19 and 1.52 respectively, during any quarter citing a recovery in credit metrics in the junk bonds space. Meanwhile, EU main CDS spreads were 0.7bp wider and crossover spreads widened 3bp. Asian equity markets are higher by 0.2% and Asia ex-Japan CDS spreads were 3.4bp wider, not close to its recent historical lows.
New Bond Issues
- Zhenro Properties 363-day green notes at 6.2% area; books over $1bn
- Korea Resources $ 5Y bond at T+130bp area; books over $600mn
Redco Properties raised $220mn via a 364-day sustainability note at a yield of 9.75%, 25bp inside initial guidance of 10% area. The bonds have expected ratings of B+/BB-, and received orders over $1.1bn, 5x issue size. There is a redemption at 101 at the option of the issuer, following registration with the NDRC. Proceeds will be used for offshore debt refinancing in accordance with its sustainable finance framework.
Singapore Telecommunications (SingTel) raised S$1bn via a PerpNC10.5 at a yield of 3.3%, 30bp inside initial guidance of 3.6% area. The bonds have expected ratings of A3/BBB and received orders over S$2.1bn, 2.1x issue size. EMEA accounted for 1% and Asia ex-Singapore accounted for 14% – Hong Kong, South Korea, China and Europe accounted for a combined 15%. Singapore made up the remaining 85%. The bonds will be issued by funding vehicle SingTel Group Treasury and guaranteed by SingTel. The coupons will reset every 10 years from year 10.5 if not called, to the prevailing Singapore dollar SOR plus an initial credit spread and a step-up margin of 25bp. The step-up margin will increase to 100bp from year 30.5 if not called. The coupon is deferrable on a cumulative and compounding basis. SingTel’s is the third Perp offering this year following Olam’s PerpNC5.5 in Jan and ESR Cayman’s PerpNC5 in Feb which currently yield 5% and 5.61% respectively.
UOB raised $1.5bn via a dual-tranche sustainability bond offering. It raised $750mn via a 5Y senior bonds at a yield of 1.336%, or T+48bp, 27bp inside initial guidance of T+75bp area. It also raised $750mn via a 10.5NC5.5 subordinated Tier 2 bond at a yield of 2.086%, or T+123bp, 27bp inside initial guidance of T+150bp area. The 5Y has expected ratings of Aa1/AA-/AA- and the 10.5NC5.5 has expected ratings of A2/BBB+/A. The bonds received orders over $3.2bn, 2.1x issue size. The notes will be issued under UOB’s GMTN programme and sustainable bond framework, with a sum equivalent to the proceeds used to finance and/or refinance green and social assets. Sustainalytics has provided a second opinion on the framework.
Macquarie Bank raised £400bn ($550bn) via a 4Y at a yield of 1.167%, 5-10bp inside initial guidance of UKT+95/100bp. The bonds have expected ratings of A2/A+/A, and received orders over £600mn ($825mn). The offering was put on hold last week after their capital requirements were increased by Aussie regulators following multiple breaches.
New Bond Pipeline
- Petron $ senior perp
- Sumitomo Life Insurance $ 60NC10 step-up callable subordinated notes
- Putian State-owned Asset Management $ bond
- Genting Malaysia $ bond
- IRFC $ 5Y bond
- Moody’s upgrades United States Steel’s CFR to B3; outlook positive
- Fitch Downgrades Yuzhou Group to ‘B+’ from ‘BB-‘; Outlook Stable
- Fitch Downgrades Sritex to ‘CCC-‘/’CCC-(idn)’ on Refinancing Uncertainty
- Japan Tobacco Ratings Lowered To ‘A+/A-1’ By S&P On Slow Deleverage As Business Wanes; Outlook Stable
- Fitch Revises Outlook on ReNew Power Restricted Group 3’s Notes to Positive; Affirms at ‘BB-‘
- Air Lease Corp. Outlook Revised To Stable From Negative By S&P On Better-Than-Expected Credit Metrics, Ratings Affirmed
- Kuwait-Based Warba Insurance Co. Outlook Revised to Stable By S&P; ‘BBB’ Rating Affirmed
- Fitch Revises Outlook on Hyundai Motor and Kia to Stable; Affirms at ‘BBB+’
- Fitch Revises Outlook on Aruba to Stable; Affirms at ‘BB’
- CoreCivic Inc. Makes Steady Progress Refinancing Near-Term Debt Maturities; New Debt Rated ‘BB-‘ By S&P
- Moody’s confirms Saka Energi’s B2 ratings, changes outlook to negative
- Moody’s affirms Solvay’s Baa2 rating; changes outlook to stable
Term of the Day
Special Drawing Rights (SDRs) which are issued by the IMF to its member countries’ central banks are a reserve asset which can be exchanged for hard currencies with another central bank. The value of an SDR is set daily based on a basket of five major international currencies – the USD (42%), the EUR (31%), the CNY (11%), the JPY (8%) and the GBP (8%). An allocation of SDRs requires approval by IMF members holding 85% of the total votes and US is the biggest holding 16.5% of the votes. Reuters reports that till date, the IMF has allocated about SDR 204.2bn ($285 billion). Plans are ongoing to increase the allocation to help low-income countries which are hurt by Covid.
On US yields mostly down with market in consolidation phase
Ben Jeffery, rates strategist, at BMOCapital Markets in New York
“Because of the growth outlook, it makes sense that people are pricing in a rate hike before what the Fed’s [forecasts] are projecting, but 2022 seems particularly early,” said Shah. “The Fed has given very clear communication on its intention to let the economy run super hot.”