US equities began the week marginally lower after the President’s Day holiday on Monday – S&P and Nasdaq were down 0.06% and 0.3%. US 10Y Treasury yields continued to climb higher by ~5bp. Similar to the US, European equities also closed flat to marginally lower with DAX underperforming, down 0.3% even as German ZEW Economic Sentiment came at 71.2 vs. a forecast of 59.6. US IG CDS spreads were 0.2bp wider and HY was 1.1bp wider. EU main CDS spreads widened 1.3bp and crossover spreads widened 7bp. Asian primary markets remain muted and have made a soft start today, down ~0.3% while Asia ex-Japan CDS spreads are 0.7bp tighter.
Bond Traders’ Masterclass
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New Bond Issues
Expedia raised $1bn via a 10Y bond at a yield of 3.057%, or T+175bp, 50bp inside initial guidance of T+225bp area. The bonds of the online travel booking site have expected ratings of Baa3/BBB-/BBB- and have a change of control put at 101. The issuance was made alongside the launch of a $825mn zero-coupon convertible bond. Proceeds together with that of the convertible will be used to finance the redemption of all of its outstanding 7% 2025s, finance its tender offer for a portion of its outstanding 6.25% 2025s if conditions are satisfied, and to pay fees and expenses related to the foregoing, with any further remaining net proceeds to be used to repay, prepay, redeem or repurchase other indebtedness.
Mizuho Financial Group raised $2bn via a dual trancher. It raised $1.4bn via a 6.25Y non-call 5.25Y (6.25NC5.25) bond at a yield of 1.234%, or T+67bp, ~25bp inside initial guidance of T+90/95bp. It also raised $600mn via a 11.25Y non-call 10.25Y (11.25NC10.25) bond at a yield of 2.172%, or T+87bp, 23bp inside initial guidance of T+110bp area. The SEC-registered bonds have ratings of A1/A- and net proceeds will be used to make a loan intended to qualify as Internal TLAC under the Japanese TLAC Standard to Mizuho Bank. Mizuho Bank will utilize such funds for its general corporate purposes. The bonds have a coupon reset where if not redeemed, they reset to the 1Y constant maturity Treasury (CMT) + initial spread.
New Bond Pipeline
- Alpek SAB $ 10Y bond
- China Ping An Insurance $ bond
- HCL Tech $ bond
- Microsoft $ bond alongside exchange offer
- JSW Steel $ bond
- Liberty Mutual Group
- Newell Brands Inc. Outlook Revised To Stable From Negative By S&P On Stronger Operating Performance; ‘BB+’ Rating Affirmed
- Latam Airlines EETC 2015-1 Class A Certificates Rating Cut To ‘CCC’ From ‘CCC+’ By S&P On Lower Aircraft Values
- Fitch Affirms Dell Technologies at ‘BB+’; Revises Outlook to Stable
- Fitch Affirms VMware at ‘BB+’; Revises Outlook to Stable from Negative
- Expedia Group Inc. Ratings Affirmed; Outlook Remains Negative; New Debt Rated ‘BBB-‘ By S&P
- Moody’s affirms DIA’s Caa2 CFR, changes outlook to stable from negative
- Moody’s withdraws Casino’s short-term ratings for business reasons
Term of the Day
Force Majeure refers to an event that can neither be anticipated nor controlled. It is a provision which removes liability on non-performance of a contract that becomes impossible or impracticable, due to the event that neither party could have anticipated or controlled. In the case of Occidental, the company sent a force majeure notice to customers on delays in receipt and delivery of oil due to extreme cold weather in the Permian Basin region that has impacted logistics due to power shut-downs, icy roads and halted production.
Yellen “commended the ECB’s swift and decisive policy response to the pandemic and discussed policy tools to foster growth and job creation in both Europe and the United States.”
“I am not thinking that we have unwanted inflation around the corner,” Daly said. “I don’t think that’s a risk we should think about right now.” “We should be less fearful about inflation around the corner, and recognize that that fear costs millions of jobs, millions of livelihoods, millions of hopes and dreams,” she said. “Let’s stay focused on the dual mandate – full employment and price stability – and not get too captivated by the fears about price stability that we forget about all those people who are sidelined and don’t have the jobs they deserve.”
Priya Misra, TD Securities strategist
“The move up in nominal yields, driven by real rates, suggests that upside risks to growth and supply — given greater chances of a package as large as $1.9 trillion — are getting priced in,” said Misra. “The move can continue for now because real rates are still near historic lows.”
Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings
“There’s a great deal of optimism in the air and that’s one of the biggest reasons we’ve seen this rise in interest rates in the U.S. and globally,” said di Galoma. “We’re trading the likelihood that a large stimulus package is coming, the vaccination trend seems to be working in the U.S., and Europe is seeing a lot of positive signs on vaccinations and reopenings.”
“In comparison to negative yields in Europe and tighter spreads in U.S. credit, emerging markets still offer value,” said Faergemann. “We expect 2021 to be characterized by EM growth outpacing developed-market growth, which can be another factor in viewing EM as being in a sweet spot.”
“We have seen some steepening of the curve this week on this economic optimism, making the 50-year part of the curve less attractive,” said Bouvet. “The relative value is not completely gone – but there may be less favourable conditions for issuance if volatility picks up.” “As much as I have misgivings about whether rise in inflation expectations are justified in the long term, it should boost appetite for inflation hedges and therefore for today’s Italy 30-year issue,” Bouvet said.
“The old way of running central banks, the way it used to be, was very, very different from now,” Polack said. “It’s very clear that purchasing power is a secondary priority.” “The problem is that we went from one crisis into another regime, so we have capital markets that haven’t found an equilibrium,” Polack said. Ultimately, the current approach to monetary policy “means that we will have discussions on how we will stabilize our society, because the asset inflation is very, very clear.” “Macro and rates aren’t following each other any longer, because rates are set in a very political context through monetary policy,” Polack said.
Top Gainers & Losers – 17-Feb-21*