US Treasuries yields were broadly higher by 5-7bp across the curve. The peak Fed funds rate widened 2bp to 5.15% for the July 2023 meeting. While a 25bp hike at next month’s FOMC meeting is all but certain (91% probability), the likelihood of another 25bp hike at the May meeting stands at 71%, up from 30% a week ago. Markets keenly await the CPI inflation report next week on February 14 with estimates of a 6.2% print. US IG CDS spreads widened by 1bp while HY spreads were 6.6bp wider. Equity indices were higher with the S&P and Nasdaq down 0.9% and 1% respectively.

European equity markets ended higher. The European main CDS spread tightened 1.1bp while crossover CDS spreads tightened 6.4bp. Asian equity markets have opened with a negative bias today. Asia ex-Japan CDS spreads were 0.9bp wider.


New Bond Issues

New Bond Issues 10 Feb 23

UniCredit raised €1bn via a 6NC5 bond at a yield of 4.486%, 25bp inside the initial guidance of MS+185bp area. The senior non-preferred bonds have expected ratings of Baa3/BBB-/BBB-, and received orders over €1.4bn, 1.4x issue size. Proceeds will be used for bail-in purposes. The current coupon of 4.45% is fixed until the call date on 16 Feb 2028. If not called, coupon resets quarterly at the 3mE + 160bps. The new bonds are priced at a new issue premium of 16.6bp to its existing 4.8% 2029s (callable in 2028) that yield 4.32%.

Sabadell raised €500mn via a 10.5NC5.5 bond at a yield of 6.05%, 45bp inside the initial guidance of MS+360bp area. The subordinated Tier 2 notes have expected ratings of BB/BB, and received orders over €1.9bn, 3.8x issue size. Proceeds will be used for general corporate purposes. The new bonds are callable from 16 May 2028 to the reset date on 16 Aug 2028. The current coupon of 6% is fixed until the reset date. If not called, coupon resets to 5Y MS + 315bps.

Westpac NZ raised $750mn via a 5Y bond at a yield of 4.902%, 20bp inside the initial guidance of T+125bp area. The senior unsecured bonds have expected ratings of A1/AA-. Proceeds will be used for general corporate purposes. The new bonds are priced 38.2bp wider to its existing 4.043% 2027s that yield 4.52%.

Wynn Resorts raised $600mn via a 8NC7.75 bond at a yield of 7.125%, 12.5bp inside the initial guidance of 7.25% area. The senior unsecured bonds have ratings of B2/B+. Proceeds will be used to fund tender for 2025 notes.

Dubai Islamic Bank raised $1bn via a 5Y sukuk (Term of the Day, explained below) at a yield of 4.8%, 27.6bp inside initial guidance of T+130bp area. The senior unsecured sukuk was rated A3/A and received orders of over $2.75bn, 2.75x issue size. The new sukuk was priced 8bp wider to its 5.493% sukuk due November 2027 that yield 4.73%.


New Bonds Pipeline

  • Khazanah Nasional Bhd hires for $ bond
  • SMBC hires for € 3Y Covered bond


Rating Changes

Term of the Day


A Sukuk is a sharia-compliant fixed income instrument that essentially works similar to bonds. In a Sukuk, key differentiators vs. conventional bonds are: – Investors share partial ownership of an asset rather than it being a debt obligation by the issuer – The pricing is based on the underlying value of assets rather than credit worthiness – The holder receives a share of underlying profits rather than interest payments (considered ‘riba’). Sharia compliance broadly implies that any profits derived from these funding arrangements must be derived from commercial risk-taking and trading only; that interest income is prohibited on lending activities and; that the assets must be halal.

To learn more about sukuk, click here


Talking Heads

On Fed-Funds Call at 8% Vaulting One Strategist Past the 6% Pack

Dwor-Frecaut, senior market strategist at Macro Hive

“I’m even more confident about my 8% call after the nonfarm payrolls report. The funds rate has to go much higher than is now predicted. Policy is still very easy… We will have low unemployment and higher inflation than the Fed’s predicting”

On Corporate Bonds Looking Pricey

Kshitij Sinha, portfolio manager at Canada Life Asset

“Risk markets seem to be pricing a soft landing scenario — I think the market is a bit too optimistic. We have moved and are moving to a more defensive stance with an allocation toward high-quality defensive names that can see through an earnings recession”

Maria Staeheli, a senior portfolio manager at Fisch Asset

“The low hanging fruit has been collected. It has been evident for the past couple of weeks” that opportunities in new issues in particular “are getting very close to fair value”

Scott Kimball, MD of fixed income at Loop Capital Asset Management

“The US credit markets look as a whole to be more or less reasonably priced if not a little rich in higher quality. There’s still some value particularly in longer-dated, lower quality investment-grade bonds but I would not characterize the market as cheap overall”

On Where ‘Immaculate Disinflation’ Comes From

Harvard economics professor Gabriel Chodorow-Reich

“In this case, the Fed was forecasting a decline in inflation without any other change in economic conditions. I specifically recall googling the phrase before posting the thread to make sure I was not taking someone else’s idea… Whether anyone else independently came up with the phrase at the same time I cannot say”


Top Gainers & Losers – 10-February-23*

BondEvalue Gainer Losers 10 Feb 23

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