US Treasury yields jumped 7-8bp higher across the curve and the peak Fed funds moved another 3bp higher to 5.11% for the June meeting. This comes on the back of the New York Empire State Manufacturing activity’s unexpected expansion in April, for the first time in five months as new orders and shipments snapped back. The reading came at 10.8 vs. expectations of -18 and follows a -24.6 print in March, underscoring economic strength. With this, the probability of a 25bp hike at the May meeting now stands at 87% vs. 80% yesterday. US IG and HY CDS spreads tightened 0.4bp and 4.2bp respectively. US equity indices rose slightly with the S&P and Nasdaq higher by 0.3% each. The equity index volatility as measured by the VIX index is below 17, the lowest since the start of last year.

European equity markets ended mixed. European main CDS spreads widened 0.4bp and Crossover spreads were wider by 4.2bp. Asia ex-Japan CDS spreads tightened by 2.4bp. Asian equity markets have opened slightly lower this morning.

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New Bond Issues

  • Sumitomo Mitsui $ 5Y at T+200bp area
  • CK Hutchinson $ 5Y/10Y at T+145/170bp area
  • ADB $ 5Y at MS+38bp area
  • EIB $ 7Y at SOFR MS+41bp area

New Bond Issues 18 Apr 23

Kookmin Bank raised $500mn via a 5Y bond at a yield of 4.651%, 40bp inside initial guidance of T+135bp area. The bonds have expected ratings of Aa3/A+/A. Proceeds will be used for general corporate purposes.

TAQA raised $1.5bn in a two-tranche deal. It raised $500mn via a long 5Y bond at a yield of 4.526%, 30bp inside initial guidance of T+120bp area. It also raised $1bn via a 10Y Green bond at a yield of 4.717%, 25bp inside the initial guidance of T+145bp area. The bonds have expected ratings of Aa3/AA-. Proceeds from the 5Y bond will be used for general corporate purposes. The new bonds priced at a new issue premium of 12.6bp over its older 2% 2028s that yield 4.4%. Proceeds from the 10Y bond will be used to finance eligible green projects as described in TAQA’s Green Finance Framework.

Wells Fargo raised $3.75bn via a 11NC10 bond at a yield of 5.389%, 25bp inside initial guidance of T+205bp area. The bonds have expected ratings of A1/BBB+/A+. Proceeds will be used for general corporate purposes.


New Bonds Pipeline

  • Banco BTG hires for $ bond
  • Pertamina Geothermal hires for $ 5Y Green bond
  • ReNew Power mandates for $ bond
  • Damac Real Estate Development hires for $ 3Y Sukuk bond
  • Mauritius Commercial Bank hires for $ 5Y bond  


Rating Changes

  • Deutsche Lufthansa AG Upgraded To ‘BB+’ On Ongoing Air Traffic Recovery And Lower Financial Leverage; Outlook Positive
  • Adler Group And Adler RE Downgraded To ‘SD’ On Approved Debt Restructuring
  • Moody’s withdraws Fosun’s ratings due to insufficient information

Term of the Day

Keepwell Provision

A keepwell provision is a legal agreement between a parent company and a subsidiary to ensure solvency and financial stability of the subsidiary for the duration of the agreement. Keepwell provisions are included in bond terms to offer bondholders confidence on the issuer’s ability to repay. The keepwell structure emerged around 2012-2013 to assuage concerns of investors over a bond issuer’s creditworthiness. However, it is important for investors to understand that keepwells are not a guarantee that the parent company will support the subsidiary in the event of a default, and there has previously been no precedent on the enforcement of keepwell structures.


Talking Heads

On Morgan Stanley Strategist Seeing US Stock Rally at Risk

“If there is one thing that can throw cold water on the large mega-cap rally, it’s higher yields due to a Fed that can’t stop hiking as soon as perhaps some investors are expecting”… percentage of stocks outperforming the S&P 500 on a three-month rolling basis is the lowest on record… “the market’s way of warning us we are far from out of the woods with this bear market”

On Goldman and TD Staking Out Opposite Positions on Fed Cut Bets

TD Securities

“We look for cut pricing to increase even further”. Expect Fed rate cuts totaling 275bp from December 2023 to September 2024

Goldman Sachs

“Some cuts currently being priced will come off”. Recommended positioning for a less deeply inverted spread between the September 2023 and September 2024 contract rates.

On Big investors dumping China shares, adding oil to portfolios – Goldman

“As concerns heightened around geopolitics, Chinese equities were net sold for the first time in a month, driven by risk unwinds with long sales outpacing short covers”

On JPMorgan, BlackRock Saying Bonds Underprice Europe Inflation

Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management

“The markets are desperately hoping that Goldilocks is on her way back, bringing with her low inflation. That’s deluded. I don’t think yields where they are now properly compensate investors for inflation and interest-rate risks”

Wei Li, the global chief investment strategist at BlackRock

“Our expectation is that the ECB is more determined than the Fed to bring inflation back to target. We think yields will go higher and inflation risk premia will return.”


Top Gainers & Losers –18-April-23*

BondEvalue Gainer Losers 18 Apr 23

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