US Treasury yields were higher across the curve with the 2Y and 5Y yields up 6-7bps. The US Treasury’s debt ceiling talks are ongoing and continue to weigh on markets. US retail sales increased by 0.4% in April, less than the expected 0.5% rise. On the industrial front, US manufacturing output rose 1% last month vs. median estimates of a 0.1% increase. The peak Fed Funds Rate was flat at 5.11% as markets expect no change in the Fed’s policy meeting in June. Equity indices closed lower with the S&P and Nasdaq down 0.6% and 0.2%. US IG CDS spreads widened by 2.7bp and HY CDS spreads widened by 14.7bp.

European equity markets ended flat. European main CDS spreads were flat while crossover CDS spreads were 2.3bp wider. Asia ex-Japan CDS spreads widened by 1bp. Asian equity markets have opened in the red today.


New Bond Issues

  • Korea Credit Guarantee Fund $ 3Y Social at T+155bp area

New Bond Issues 17 May 23

HSBC raised €1.75bn via a 10NC9 senior unsecured bond at a yield of 4.856%, 20bp inside initial guidance of MS+210bp area. The bonds have expected ratings of A3/A-/A+, and received orders over €2.75bn, 1.6x issue size. Proceeds will be used for general corporate purposes.

Santander raised €1.5bn via a 10.25NC5.25 subordinated tier 2 bond at a yield of 5.816%, 25bp inside initial guidance of MS+310bp area. The bonds have expected ratings of Baa2/BBB+/BBB, and received orders over €4bn, 2.7x issue size.

BNP Paribas raised €1.25bn via a 10Y senior preferred bond at a yield of 4.141%, 22bp inside initial guidance of MS+140bp area. The bonds have expected ratings of Aa3/A+/AA-, and received orders over €1.6bn, 1.3x issue size.

Saudi Arabia raised $6bn via a two-part sukuk deal. It raised $3bn via a 6Y sukuk at a yield of 4.274%, 30bp inside initial guidance of T+110bp area. The new bonds are priced 5.6bp tighter to its existing 4.375% 2029s that yield 4.33%. It also raised $3bn via a 10Y sukuk at a yield of 4.511%, 35bp inside initial guidance of T+135bp area. The new bonds were priced roughly in-line with its existing 2.25% 2033s that yield 4.5%. The bonds have expected ratings of A1/A+ (Moody’s/Fitch). Proceeds will be used for general domestic budgetary purposes.

Pfizer raised a massive $31bn via a jumbo eight-tranche issuance, the fourth largest bond deal ever. Details are given below:

The bonds have expected ratings of A1/A+. Proceeds will be used to finance a portion of the Seagen merger and pay related fees and expenses. Excesses may be to repay its borrowings or invest in short-term instruments consistent. In an event where the merger between Pfizer and Seagen does not happen before the stipulated period or falls through, Pfizer will be required to redeem each series of the issued notes except the 10Y and 30Y notes at a special mandatory redemption price at 101% of principal plus accrued and unpaid interest. In such an event, proceeds from the 10Y and 30Y notes will be used for general corporate purposes. The new 7Y was priced 21bp wider compared to its existing 2.625% sustainability bonds due 2030 that yield 4.47%.

Term of the Day

Negative Goodwill

A negative goodwill is a financial term to indicate that the purchasing price paid to acquire a company is lower than the value of its tangible assets. Essentially the acquirer buys out a target company at a bargained/discounted price and this typically happens when the target company is in distress and thus is willing to sell itself at a lower value that that of its assets. The net result is a gain in the books of the acquirer. 

In the case of the UBS-Credit Suisse acquisition, UBS will be acquiring the latter at $3.3bn with a negative goodwill of $34.8bn.


Talking Heads

On Looking to EM Debt for Shelter From Rising Stress in US Credit – Pimco

Money managers should look at debt from nations like Mexico, India, Vietnam and Indonesia, which have “good business models that should stand the test of time… “I think that for a handful of EM countries, they propose very viable alternatives to US corporates. They stand as good investments in their own right… If we do get into that sort of credit crunch and a subsequent default cycle.”

On warning that US default could trigger recession, ‘break’ financial markets – Janet Yellen

“It is very conceivable that we’d see a number of financial markets break – with worldwide panic triggering margin calls, runs and fire sales”

On Debt-Cap Fear May Push Bill Yields to 10% – Pimco’s Jerome Schneider

“Fear is going to be exacerbated to the tune of hundreds of basis points, if not more in T-bill yields, thinking of some yields in the excess of seven, eight, nine, 10 percent. What we’re thinking about is the fact that the landscape right now in short-term land is really divergent.”


Top Gainers & Losers – 17-May-23*

BondEvalue Gainer Losers 17 May 23

Other News

Rakuten plans new share issue to raise around $2.2bn -sources

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