US Treasury yields were slightly higher across the curve with the US 2Y Treasury yield up 4bp to 4.13%. In just just over a month after SVB’s collapse and the impact on the banking system, JPMorgan agreed to acquire First Republic Bank (FRB) in an FDIC-led deal. First Republic is the second biggest bank failure ever in the US, following Washington Mutual Bank’s failure in 2008. JPMorgan will acquire around $173bn of loans and about $30bn of securities from FRB – JPMorgan will pay $10.6bn to the FDIC on hand, with the FDIC providing JPMorgan with a $50bn 5Y fixed-term loan for the takeover.

Separately, markets await the FOMC decision tomorrow, where a 25bp hike is expected. The Peak Fed funds rose 2bp to 5.13% for the June meeting. US IG and HY CDS spreads were wider by 1.3bp and 10.9bp respectively. US equity indices were stable with S&P and Nasdaq just marginally lower by 0.04% and 0.11%.

European equity markets ended higher too. European main CDS spreads were tighter by 1.5bp while Crossover spreads widened 6.6bp. Asia ex-Japan CDS spreads widened by 0.3bp. Asian equity markets have opened in the green today.


New Bond Issues

  • SK On $ 3Y Green at T+195bp area

New Bond Issues 2 May 23

Navient raised $500mn via a 7Y bond at a yield of 9.375%, in-line with initial guidance. The bonds have expected ratings of Ba3/B+. Proceeds will be used for general corporate purposes.

Comcast raised $5bn via a 4-part deal. It raised:

  • $1bn via a Long 5Y bond at a yield of 4.591%, 20bp inside the initial guidance of T+115bp area.
  •  $1bn via a 10Y bond at a yield of 4.839%, 20bp inside the initial guidance of T+145bp area. The new bonds are priced 3.1bp tighter to its existing 7.05% 2033s that yield 4.87%.
  • $1.6bn via a 30Y bond at a yield of 5.379%, 25bp inside the initial guidance of T+180bp area.
  • $1.4bn via a 41Y bond at a yield of 5.529%, 25bp inside the initial guidance of T+195bp area.

The bonds have expected ratings of A3/A-/A-. Proceeds will be used to fund the purchase of the securities with respect to its tender offers and the payment of related accrued and unpaid interest, premiums, fees and expenses. If Comcast does not use the funds for the above, then it will use them for general corporate purposes, that includes debt repayment.

Meta raised $8.5bn via a five-tranche issuance. Details are given in the table below.

New Bonds Pipeline

  • Banco BTG hires for $ bond


Rating Changes

  • Bombardier Inc. Upgraded To ‘B’ From ‘B-‘ On Solid Execution And Deleveraging; Outlook Stable 
  • Fitch Downgrades France to ‘AA-‘; Outlook Stable
  • Fitch Downgrades Central China Real Estate’s IDR to ‘RD’ on Completion of Exchange Offer

Term of the Day

Capital Relief Trade

Capital Relief Trades (CRT) are transactions that are put together by banks to transfer risk to third party investors and reduce the bank’s regulatory capital requirements. Here, a bank pays a third party investor(s) an annual premium in exchange for transferring risk of some of the bank’s loans. Thus, in effect, the transfer of the bank’s loans reduces/helps release a bank’s regulatory capital requirements and thereby also reduces its Risk Weighted Assets (RWAs). This helps increase a bank’s CET1 ratio as the denominator i.e., RWA is lower.

JPMorgan’s takeover of First Republic Bank involved a CRT. It borrowed $50bn from the FDIC over five years and paid them $10.6bn on the spot to do the deal. While JPMorgan could have put up $60.6bn upfront, the FDIC’s loan was made so that JPMorgan’s capital requirements are not breached. FDIC will bear 80% of the risk of mortgages and commercial loans of FRB, thereby leading to lower risk weighted assets of JPMorgan.


Talking Heads

On Bond investors fearing recession, boost safety bets ahead of FOMC

Chip Hughey, MD fixed income, at Truist Advisory

“Tight monetary policy, whose impact has not fully emerged yet but it’s going to over the next six months, combined with tighter lending conditions in the banking system, will result in growth continuing to slow as we move through 2023”

Lon Erickson, MD and PM at Thornburg Investment Management

Rate cuts “should reverberate throughout the curve into the five-year, 10-year, and 30-year part… “You want to have more duration on because that means you will get more bang for your buck for that interest rate move”

On Morgan Stanley’s Wilson Says Hawkish Fed Could Damp Stock Rally

“That could ultimately be a negative surprise for equities, particularly given the upside in index price we’ve seen into the FOMC and the fact that this meeting is one of the least talked about in recent memory”

On Deutsche Bank Cutting Debt Plan as Funding Costs Rise After Crisis

“We haven’t really gone to the market since the turbulence started in any meaningful way. The reason is not because we don’t have access to it, but we don’t like the price… And pre-funding therefore was I think economically sensible and has actually given us a slightly better funding profile for this year and going into 2024 than we might have otherwise expected… We are in a good place on our funding plan for this year…. overall very constructive about where we stand and our hope and expectation is spreads will narrow again”

On China Shifting on Debt Restructuring After Being Burned – IMF chief, Kristalina Georgieva

While China long resisted providing relief, citing its own status as a developing country, that thinking is beginning to change…”Why… Because they are now being burned. Nothing makes you more eager to understand debt restructuring than when a country says ‘Sorry, I can’t pay you back”


Top Gainers & Losers – 02-May-23*

BondEvalue Gainer Losers 2 May 23

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