US Treasury yields continued to remain rangebound, while the peak Fed funds rate was 2bp higher to 5.12% for the June meeting, implying at least one more 25bp hike. NY Fed’s John Williams said that while the banking sector has stabilized after the events at SVB and Signature Bank, the recent stress may still see a continued tightening of credit conditions. He added that the Fed was “absolutely” committed to bringing inflation back down to its 2% target over the next few years. Besides, the Fed said in its monthly Beige Book survey that the US economy was “little changed” but had begun to show signs of slowing. US IG and HY CDS spreads widened 1.5bp and 7.1bp respectively. US equity indices were little changed – the S&P and Nasdaq broadly ended flat. .  

European equity markets ended flat too. European main CDS spreads widened 0.3bp and Crossover spreads were wider by 1.4bp. Asia ex-Japan CDS spreads widened by 1.9bp. Asian equity markets have opened slightly higher this morning.

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New Bond Issues

  • Pertamina Geothermal $ 5Y Green at 5.6% area

New Bond Issues 20 Apr 23

ReNew Energy (parent company of ReNew Power) raised $400mn via a 3.25NC2.25 green bond at a yield of 8.15%, 35bp inside initial guidance of 8.5% area. The bonds have expected ratings of Ba3/BB-. Proceeds will be used for (i) the prepayment of its own existing indebtedness (ii) its capital expenditure for eligible green projects and (iii) incurring issue-related expenses and for any other purpose(s) permitted by applicable law.

Bank of America raised $8.5bn via a two-part deal. It raised $3.5bn via a 6NC5 bond at a yield of 5.202%, 22bp inside initial guidance of T+170bp area. It also raised $5bn via a 11NC10 bond at a yield of 5.288%, 22bp inside initial guidance of T+190bp area. The bonds have expected ratings of A2/A-/AA-. Proceeds will be used for general corporate purposes. The new 6NC5s were priced at a new issue premium of ~10bp over its existing 4.271% 2029s callable in 2028, that yield 5.3%.

Morgan Stanley raised $7.5bn in a 3-tranche deal. It raised

  • $1.5bn via a 3Y bond at a yield of 4.754%, 25bp inside initial guidance of T+105bp area
  • $2.75bn via a 6NC5 bond at a yield of 5.164%, 15bp inside initial guidance of T+160bp area
  • $3.25bn via a 11NC10 bond at a yield of 5.25%, 15bp inside initial guidance of T+180bp area

The 3Y bonds have expected ratings of Aa3/A+/AA- while the 6NC5 and 11NC10 have expected ratings of A1/A-/A+. Proceeds will be used for general corporate purposes. 

New Bonds Pipeline

  • Banco BTG hires for $ bond
  • Mauritius Commercial Bank hires for $ 5Y bond


Rating Changes

  • Charles Schwab Corp. Ratings Lowered To ‘A-‘ On Increased Interest Rate Risk; Outlook Stable
  • Moody’s downgrades Kohl’s CFR to Ba2, outlook negative

Term of the Day

Corporate Bond Carry Spread 

A corporate bond carry spread refers to the extra compensation that an investor gets by investing in a corporate bond over their cost of funding. Cost of funding is measured by the effective fed funds rate for simplicity and the return on corporate bonds is measured by their yield.

TD securities notes that the carry spread of the US corporate bond index over the effective fed funds rate is now as low as 20bp, the first time since 2007.


Talking Heads

On Corporate Bonds Are Being Cut to Junk at Fastest Pace Since 2020

Barclays’ Dominique Toublan

“A downgrade from investment grade to high yield signals that there is a credit deterioration for that company. The question becomes is it just the one company or is it a broader theme?”

Fitch Ratings

“Monetary tightening and slower economic growth will negatively impact demand while easing inflation will reduce pricing power, leading to lower revenue growth and less ability to protect margins, absent cost cutting, for some U.S. companies”

On TD Spotting a Red Flag Not Seen Since 2007 for the Corporate Bond Market

Cristian Maggio, TD’s head of portfolio and ESG strategy

“The US recession we forecast in the final quarter of the year… has heightened the risk of a correction in the US investment-grade corporate bond market… Tighter lending conditions ahead may act as a catalyst for this correction… Banks are important in this context as their sensitivity to interest rates may pressure US investment-grade corporate yields to correct… While unfunded investors (a large share of the market) may be content with a modest yield pick-up over Treasuries, liquidity providers need margins large enough to beat their internal funding costs. Against this backdrop, the widening of credit spreads we anticipate is necessary to rebalance the market and address pressure from the increasingly exhausted carry trade.”

On Storm clouds gathering over highly indebted companies – Moody’s

“We expect the (list) to continue to grow in size, given difficult credit conditions and market volatility… The rise in interest rates materially increased the debt-service costs on some of these companies’ floating-rate debt, resulting in weaker interest coverage… Over the next 12 months, the number of distressed exchanges (DE) will continue to climb, given that an overwhelming majority of the lower-rated spec-grade debt issuers are private-equity (PE) owned companies”

On Hedge Fund That Gained 523% on China Property Bonds Is Selling

Bull Asset CIO Shi Yafei

“An industry-wide recovery won’t happen any time soon. For the rest of the year, less strong developers will still run into problems, and even some relatively high-quality companies could also face liquidity issues… The market will be tougher this year as there will hardly be such opportunities again”

Zhang Yang, a VP for investor relations at Marine Capital

“We’re not hopeful that China’s economy can thrive on its own… We’re almost certain that this is a once-in-a-decade opportunity, with the reaction in share prices being just a matter of time”


Top Gainers & Losers -20-April-23*

BondEvalue Gainer Losers 20 Apr 23

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