US Treasury yields dropped further yesterday as risk-off caught on to the markets. The demand for haven assets (Term of the day, explained below) saw the US 2Y yield fall 16bp to go back below the 4% mark. The 10Y yield was down 7bp. This comes on the back of revived fears of a US economic slowdown and a banking sector contagion. Fears of a banking sector slowdown rose after First Republic Bank saw a massive $100bn in deposit withdrawals in Q1. The S&P banking index fell 2.6% with the First Republic’s shares tumbling 49%. Bloomberg reported that First Republic Bank is exploring an asset sale of up to $100bn of long-dated mortgages and securities as part of a rescue plan. The broad risk-off move saw US equity indices drop with the S&P and Nasdaq down 1.6% and 2% respectively.

The Peak Fed funds fell by 4bp to 5.10% for the June meeting with CME probabilities still indicating a 25bp hike in the Fed’s May meeting, albeit with a reduced probability of 75% now vs. 85% yesterday. US IG and HY CDS spreads were wider by 2.5bp and 13bp respectively.

European equity markets ended lower too. European main CDS spreads were wider by 1.6bp and Crossover spreads widened 9bp. Asia ex-Japan CDS spreads further widened by 3.1bp. Asian equity markets have opened with a negative bias again this morning.

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New Bond Issues

  • SMBC Aviation Capital $ 5Y at T+240bp area 

New Bond Issues 26 Apr 23

BOC Aviation raised $500mn via a 10Y bond at a yield of 5.015%, 35bp inside initial guidance of T+195bp area. The senior unsecured bonds have expected ratings of A-/A-. Proceeds will be used for general corporate purposes, including to fund capital expenditures and refinance existing debt.

Volkswagen raised €2bn in a 3-trancher. It raised

  • €1bn via a short 3Y bond at a yield of 4.28%, 23bp inside initial guidance of MS+110bp area
  • €500mn via a 5Y bond at a yield of 4.48%, 10bp inside initial guidance of MS+145bp area
  • €500mn via a 8Y bond at a yield of 4.679%, 10bp inside initial guidance of MS+175bp area

The senior bonds have expected ratings of A3/BBB. Proceeds will be used for general corporate purposes.


New Bonds Pipeline

  • SBI hires for $ 5Y bond
  • Banco BTG hires for $ bond


Rating Changes

  • Moody’s downgrades Bed Bath & Beyond’s PDR to D-PD following Chapter 11 filing
  • Moody’s changes outlook on Heathrow Finance to stable; affirms Ba2/B1 ratings
  • Fitch Revises Holcim’s Outlook to Positive; Affirms at ‘BBB’

Term of the Day

Haven Assets

Haven assets aka ‘safe havens’ refer to those class of assets/securities which are in demand when market conditions deteriorate. Examples of haven assets include US Treasury bonds, German Bunds, UK Gilts, Japanese Government Bonds (JGBs) and gold. These are in contrast to ‘risk assets’ which are generally those assets/securities that are in demand when market conditions are buoyant, like equities, real estate and high yield bonds.

Talking Heads

On Fed Hike No Longer Certain for Traders as Bank Woes Spur Bonds

Michael Cudzil, a senior portfolio manager at PIMCO

“The bond market is responding to the regional bank news. It is too soon to call this a crisis”

RJ O’Brien & Associates Managing Director John Brady

“It would take a pretty large shock. It seems a bit early to hit the panic button”

On Biggest Treasury Buyers Turning to Swaps to Flee Wild Price Swings

Naokazu Koshimizu, senior rates strategist at Nomura Securities 

“The low-yield environment both globally and in Japan meant investors had to get carry, they had to enhance yields. Now we see Japanese investors are flowing into the asset-swap space to get carry, because there’s a difference — a lot of difference — between Treasury cash yields and swap rates.”

On NY Fed limiting types of firms that can access its reverse repo facility

“Accessing the reverse repo facility “should be a natural extension of an existing business model, and the counterparty should not be organized for the purpose of accessing [reverse repo] operations”… Money market funds that “in the sole judgment of the New York Fed, are organized for a single beneficial owner, or exhibit sufficient similarities to a fund so organized, generally will be deemed ineligible to access reverse repo operations” 


Top Gainers & Losers – 26-April-23*

BondEvalue Gainer Losers 26 Apr 23

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