US Treasury yields were marginally higher yesterday after a risk-off move saw rates fall by over 7bp a day ago. The US 2Y was steady at 3.94%, still below the 4% mark, while the 10Y yield was up 4bp to 3.44%. First Republic Bank’s (FRB) shares tumbled a further 30% yesterday after losing almost half their value the day before. This came after reports that government officials were unwilling to intervene in any rescue of the bank. Bloomberg also reported that the Fed is considering downgrading its rating of the bank, potentially limiting FRB’s ability to borrow from them. US equity indices were mixed as the S&P fell 0.4%, while the Nasdaq edged 0.7% higher. 

The Peak Fed funds was unchanged at 5.10% for the June meeting with CME probabilities continuing to indicate a 25bp hike in upcoming Fed’s May meeting, with a 73% probability. US IG and HY CDS spreads were wider by 0.8bp and 2.6bp respectively.

European equity markets ended lower. European main CDS spreads were wider by 1.5bp and Crossover spreads widened 4.7bp. Asia ex-Japan CDS spreads further widened by 2.2bp. Asian equity markets have opened with a slight positive bias this morning.


New Bond Issues

  • SBI $ 5Y at T+185bp area
  • Eximbank $ short 5Y at  T+310bp area

New Bond Issues 27 Apr 23

SMBC Aviation Capital raised $650mn via a 5Y bond at a yield of 5.465%, 40bp inside initial guidance of T+240bp area. The senior unsecured bonds have expected ratings of A-/BBB+. Proceeds will be used for general corporate purposes, that may include the purchase of aircrafts and repayment of existing debt amongst others. The bonds were priced at 6.5bp tighter to its existing 2.3% 2028s that yield 5.53%.

Scotiabank raised €1bn via a 2Y FRN (Term of the Day, explained below) at a yield of 3.698%, 17bp inside the initial guidance of 3mE+60bp area. The bonds have expected ratings of A2/A-/AA-.


New Bonds Pipeline

  • Banco BTG hires for $ bond


Rating Changes

  • Altice France S.A. Downgraded To ‘B-‘ On Increased Interest Cost And Negative Free Cash Flow; Outlook Stable

Term of the Day

Floating Rate Bonds

Floating Rate Bonds are also known as floaters or FRNs (floating rate notes). These are bonds with a variable interest rate unlike fixed rate bonds. Floaters are considered attractive for investors in a rising interest rate environment since the interest rate/coupon gets re-adjusted periodically (semi-annually/quarterly etc.), linked to benchmark rates such as SOFR or LIBOR.


Talking Heads

On Seeing Several ‘Fun Markets’ for Credit Traders – BlackRock’s Rick Rieder

“It’s one of the most fun markets that I’ve been in in a long time because there’s so many dynamic changes taking place. We’re buying quality assets. We’re buying things in the front end of the yield curve. Commercial paper at 6%! These are crazy levels”

On UK Getting Record Demand for Bonds Hedging Against Inflation

Megum Muhic, an analyst at RBC

“This isn’t necessarily a reflection of outright demand for inflation-linked gilts. It’s more about the discount offered, which may be encouraging LDI funds to switch into the new bond, particularly given the cheapness of the 20y sector on the broader real yield curve”

ING rates strategist Antoine Bouvet

“Would indicate that demand for inflation hedges remains healthy but a lot of demand for inflation-linked gilts is captive demand”

On US debt default triggering ‘economic catastrophe’ – US Treasury Secy., Janet Yellen

“A default on our debt would produce an economic and financial catastrophe. A default would raise the cost of borrowing into perpetuity. Future investments would become substantially more costly. Congress must vote to raise or suspend the debt limit. It should do so without conditions. And it should not wait until the last minute”.

On Asia Traders’ Strategy Guide to Playing US Debt-Ceiling Debate

Hilde Jenssen, head of fundamental equities at Nordea Asset Management

“The frequent political showdowns on whether to raise the $31.4 trillion debt ceiling raises the question whether the US really is a risk-free issuer. Asian equities dropped initially on the news before rebounding. Regardless of the rating agency’s decision, we are prepared to face volatility in Asian stocks over the next few months”

David Chao, global market strategist for Asia Pacific at Invesco

“Investors should prepare some dry powder to buy assets that may be oversold during this period of volatility”


Top Gainers & Losers – 27-April-23*

BondEvalue Gainer Losers 27 Apr 23

Other News

Evergrande set to learn how broad support is for its debt plan

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