US Treasury yields jumped on Thursday following the risk-off move the day prior. The 2Y rose 28bp to back above 4% at 4.22% while the 10Y rose 10bp to 3.58%. This was largely on the back of an announcement from 11 American banking majors, including JP Morgan, Morgan Stanley and Bank of America, to deposit $30bn into First Republic Bank, which many had identified as vulnerable and most at risk after SVB’s collapse. The move, which was orchestrated by the US government, triggered a 2.2% gain in the S&P 500 bank index as well as a rally in the broader equity indices — the S&P and Nasdaq rose 1.76% and 2.48% respectively. A 25bp hike at next week’s FOMC meeting is on the cards with a probability of 86%, up from 55% yesterday. The peak Fed funds rate rose 10bp to 4.98%.
Data published by the Fed showed $152.85bn in borrowing from the discount window — the traditional liquidity backstop for banks — in the week ended March 15, a record high, up from $4.58bn the week prior. The previous all-time high was $111bn reached during the 2008 financial crisis. Further, an additional $11.9bn was borrowed from the Fed’s new emergency backstop fund, the Bank Term Funding Program (BTFP), launched Sunday. Taken together, the credit extended through the two backstops shows a banking system that is still fragile and dealing with deposit migration in the wake of the failure of SVB and Signature Bank last week. Credit spreads in the US eased – US IG and HY CDS spreads tightened 5.3bp and 25.9bp respectively.
European equity markets inched higher as well. European main and Crossover CDS spreads eased 4.6bp and 39.0bp respectively. Asia ex-Japan CDS spreads tightened 3.6bp. Asian equity markets have opened in the green.
New Course on Bonds for Individual Investors | 13 and 27 April 2023
.png)
New Bond Issues
New Bonds Pipeline
- Shinhan Bank hires for $ senior bond
- REC hires for $ Long 5Y Green bond
- Qatar plans for $ bond
Rating Changes
- Expedia Group Inc. Upgraded To ‘BBB’ On Expectations For Continued EBITDA Growth And Low Leverage; Outlook Stable
- Shipping Co. Navios Maritime Partners Upgraded To ‘BB’ On Enhanced Diversity And Profitability; Outlook Stable
- Mallinckrodt PLC Downgraded To ‘SD’ On Below-Par Debt Repurchases; 2029 Secured Note Rating Lowered To ‘D’
Term of the Day: Subordinated Bonds
Subordinated bonds refer to bonds that rank below senior debts on the capital structure. In the event of liquidation, holders of subordinated debt would only be paid after all the senior debt is repaid. Thus, the ratings and yield of subordinated debt tend to be lower and higher respectively, to account for the greater risk associated with subordinated vs. senior debt.
There are different kinds of subordinated debt that can include perpetuals/AT1 CoCos, payment-in-kind notes, mezzanine debt, convertible bonds, vendor notes etc. Subordinated debt rank higher to preferred equity and common equity in the capital structure.
Talking Heads
Top Gainers & Losers – 17-March-23*
