US Treasury yields were slightly lower across the curve while the peak Fed funds rate moved 2bp higher to 4.98% for the May meeting. US Core PCE, the Fed’s preferred inflation measure, rose 4.6% in February, a slight deceleration from the 4.7% seen in January. Headline PCE came at 5% in February vs. 5.3% a month prior. Separately, OPEC+ announced an unexpected cut to supply, reigniting fears of more persistent consumer cost pressures. They decided to reduce output by more than 1 million barrels a day. Oil prices rose on the news with WTI up as much as 8%, the biggest intraday move in more than a year, and traded at $79.60 a barrel at 9:44 a.m.
CME maximum probabilities are now slightly skewed towards a 25bp rate hike in May (58% probability vs. 48% a day earlier). The probabilities are almost evenly poised for either a status quo or a 25bp rate cut in the subsequent meetings with a 25bp cut only being priced for November albeit only with a 38% chance. US IG and HY CDS spreads tightened 1.9bp and 14.2bp respectively as the broad risk-off sentiment eased. The S&P and Nasdaq ended higher on Friday, up by over 1.4% and 1.7% respectively.
European equity markets ended higher too. European main CDS spreads tightened by 3.2bp and Crossover spreads were 16.5bp tighter. Asia ex-Japan CDS spreads tightened by 5.4bp. Asian equity markets have also opened broadly in the green this morning taking cues from global bourses.
New Bond Issues
- REC $ 5Y Green at T+250bp area
- Shinhan Bank $ 5Y Gender Equality at T+145bp area
New Bonds Pipeline
- Cyprus hires for first ever sustainable bond
Rating Changes
- Moody’s upgrades General Motors Financial’s long-term senior unsecured ratings to Baa2, outlook is stable; follows similar actions on the parent’s ratings
- Fitch Downgrades Sino-Ocean to ‘B+’; Maintains Rating Watch Negative
- Correction: Fitch Downgrades Lippo Malls Indonesia Retail Trust to ‘CCC’
- Turkiye Outlook Revised To Negative From Stable; ‘B’ Ratings Affirmed
- Oman Outlook Revised To Positive On Improving Fiscal Performance; ‘BB/B’ Ratings Affirmed
Term of the Day
Gender Equality Bonds
Gender Equality Bonds are a type of social bonds that are broadly issued to support the advancement, empowerment and equality of women. Like other themed bonds, they can be issued as senior unsecured notes referencing the issuer’s balance sheet where proceeds are for specific use on eligible ‘gender’ activities. Most bonds issued with a ‘gender’ label have so far relied on the ICMA’s Social Bond Principles, the UN’s Sustainable Development Goals or the UN Women’s Empowerment Principles as reference standards. Gender related areas include addressing financial inclusion of women, female entrepreneurship in emerging markets, access to leadership positions and gender-positive corporate policies.
Korean lender Shinhan Bank has launched a 5Y gender equality bond at T+145bp area with proceeds to be used to fund projects that help women borrowers access essential services according to Shinhan’s sustainable development goals financing framework.
Talking Heads
On One Risk Missing From Strategists’ 2023 View: Banking Crisis
Max Kettner at HSBC Holdings
“There is no sugar coating this — our constructive view has proved pretty wrong lately.. This is not a liquidity crisis or a capital crisis, it’s about confidence.”
Sharon Bell, strategist at Goldman Sachs
“We felt that with rates rising so fast, the US market was vulnerable… But it’s one thing to say vulnerable and another to actually pinpoint the problems that can occur and that’s very, very difficult”
Morgan Stanley’s Mike Wilson
“The last part of the bear can be vicious and highly correlated. Prices fall sharply via an equity risk premium spike that is very hard to prevent or defend in one’s portfolio”
On Robust Bond Gains Masking Risk of Market Pain Ahead
David Knutson, head of US fixed income product management at Schroders
“The fastest rate hikes on record are bound to cause disruptions and dislocations. The market is not sure yet who will be left without a chair when the music stops.”
Gordon Shannon, portfolio manager at TwentyFour Asset Management
“There is a lot of complacency about the risks that come from financial tightening. Banks increasing lending standards, lending less, lending at higher rates and demanding more security — all of that translates into serious downside for the real economy”
Amanda Lynam, head of macro credit research at BlackRock
“We’re already seeing some signs under the surface of levels of distress picking up in the credit market… market is signaling that there is some concern now that’s largely concentrated at the low-quality end of the spectrum.”
On ECB’s De Guindos warning of broad risks in financial sector
“In our view, vulnerabilities in the financial system prevail in the non-bank financial sector, which grew fast and increased its risk-taking during the low interest rate environment”
On US inflation being able to drop without much harm to job market – Fed’s Waller
“Inflation can be brought down quickly with relatively little pain in terms of higher unemployment. Recent data are consistent with this story.”
