US Treasury yields moved slightly higher, continuing the move post the US CPI report. The peak Fed funds rate was lower by 2bp to 5.24% for the July 2023 meeting. With a 25bp hike in March being priced in, markets are expecting another 25bp in May with a 76% probability. US retail sales jumped 3% MoM in January, topping expectations of a 2% print. Core retail sales also jumped by 2.3%, beating estimates of a 0.9% print, with both numbers indicating solid demand in the US economy. US IG CDS spreads tightened by 0.3bp while HY spreads were 0.2bp tighter. Equity indices were higher with the S&P and Nasdaq up 0.3% and 0.9% respectively.

European equity markets ended higher. The European main CDS spread tightened 0.9bp while crossover CDS spreads tightened 5.6bp. Asian equity markets have opened higher  today. Asia ex-Japan CDS spreads were 0.6bp tighter.

New Bond Issues

Credit Suisse London raised €500mn via a 3.5Y bond at a yield of 5.606%, 25bp inside initial guidance of MS+260bp area. The senior unsecured bonds have expected ratings of A3/A-/BBB+, and received orders over €600mn, 1.2x issue size. Proceeds will be used for general corporate purposes.

Amgen raised $24bn via a jumbo eight-tranche deal as shown in the table below:

The senior unsecured bonds have expected ratings of Baa1/BBB+, and received orders over $90bn, 3.75x issue size. Proceeds will be used to pay for the Horizon Therapeutics acquisition and for general corporate purposes.

MUFG raised $5bn via a five-tranche deal as shown in the table below:

The senior unsecured bonds have expected ratings of A1/A-/A-. Proceeds will be used to fund operations of MUFG Bank Ltd. and Mitsubishi Trust & Banking Corp.


Rating Changes

Term of the Day

Earnings Yield

Earnings yield is a metric used to identify whether a stock/index is overpriced or underpriced. It is calculated as the earnings divided by the share price/index level (in other words, the inverse of the P/E ratio. ‘Growth stocks’ generally have a higher P/E ratio and thus have a low earnings yield. On the other hand, ‘value stocks’ have a lower P/E ration and thus have a higher earnings yield.

Bloomberg reports that the earnings yield of the S&P 500 index is now lower than the yield on a 6M US Treasury bill, indicating the attractiveness of fixed income relative to equities.


Talking Heads

On Goldman Growth Fund Boosts Bets on India as China Interest Cools

Stephanie Hui, co-head of alternative investing in Asia at GSAM

“While there’s excitement about China’s reopening, the capital markets haven’t rebounded yet and deal flow consequently hasn’t fully bounced back either… Public side investors are seeing some flows back into the stock market, but on the private side, there is still a bit of a time gap. In the meantime, India and Japan have been sharing the limelight”

On S&P 500 Haters Now Making Enough in Treasuries to Bid Stocks Farewell

Jerry Braakman, CIO of First American Trust

“We think we’re headed into economic deterioration and the current volatility in the market is enough for us to be very cautious in equities, and you’re getting paid in the meantime to wait with cash. So we do think it’s an attractive space to be in fixed income versus equities”

Ren, PM at Penn Mutual Asset Management

“If you look at it from a valuations point of view, bonds are much more attractive compared to stocks. But the problem is stock managers manage stocks, bond managers manage bonds”

Gargi Chaudhuri, head of iShares investment strategy Americas

“Looking at across what yields we’re getting in the front-end of the fixed-income markets, if you own ICSH which basically gives you over 4.6% yield”

On China’s $2 Trillion LGFV Market Flashes New Credit Warning

Laura Li, credit analyst at S&P

“Investors should stay highly vigilant of lower-quality LGFVs from high-risk areas. If refinancing is further hampered and the government’s resources cannot be deployed in a timely manner, there may be more debt repayment crises or even public bond defaults”

On JPMorgan’s top trader sees China as biggest overseas opportunity

Troy Rohrbaugh, JPMorgan’s head of global markets

“China is by far the biggest opportunity for us. We continue to invest as we did previously, obviously cautiously. We’re ready to adjust if necessary… Volatility is going to remain elevated, particularly in macro products”


Top Gainers & Losers – 16-February-23*

BondEvalue Gainer Losers 16 Feb 23

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