US equity markets jumped higher despite the hawkish Fed (scroll below for details) as the S&P and Nasdaq ended 1.6% and 2.2% higher. All sectors barring Energy were in the green, led with IT and Healthcare, up over 2% each. US 10Y Treasury yields moved 3bp higher to 1.46%. European markets were mixed with the DAX and CAC up 0.2% and 0.5% while FTSE was down 0.7%. Brazil’s Bovespa was up 0.6%. In the Middle East, UAE’s ADX was down 0.3% while Saudi TASI ended 1.1% higher. Asian markets have opened mostly higher with Shanghai, STI and Nikkei up 0.3%, 0.1% and 1.6% respectively while HSI was down 0.7%. US IG CDS spreads tightened 1.7bp and HY CDS spreads tightened 6.3bp. EU Main CDS spreads were 0.4bp tighter and Crossover CDS spreads were 2.4bp tighter. Asia ex-Japan CDS spreads widened 0.2bp.
New Bond Issues
- China Aircraft Leasing Group $ 3Y at 4.85% final
- Sunkwan Properties $ 364-day at 13.5%
Greentown China Holdings raised $150mn via a 3NC2 bond at a yield of 5.95%. The bonds are unrated. Proceeds will be used for debt refinancing.
New Bonds Pipeline
- SGSP (Australia) hires for $ green bond
Rating Changes
- China South City Downgraded To ‘B-‘ On Tight Liquidity; Outlook Negative; Rating Withdrawn At The Company’s Request
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Outlooks On Turkish Banks Now Negative On Increasing Economic And Funding Risks
- Moody’s affirms Teva’s Ba2 ratings; outlook revised to stable
- Fitch Revises Uruguay’s Outlook to Stable, Affirms IDRs at ‘BBB-‘
Term of the Day
Dot Plot
The Fed dot plot is a visual representation of interest rate projections of members of the Federal Open Market Committee (FOMC), which is the rate-setting body within the Fed. Each dot represents the Fed funds rate for each year that an anonymous Fed official forecasts. The dot plot was introduced in January 2012 in a bid to improve transparency about the range of views within the FOMC. There are usually 19 dots for each year, but 1 position is currently vacant, which is why the latest dot plot has 18 dots.
Talking Heads
On Powell Declares Inflation Big Threat as Fed Signals Rate Hikes
Scott Brown, chief economist with Raymond James
“The first step for the Fed is open-mouth operations: They are talking tough. The Fed is seeing inflation broadening out and people are hearing about inflation on the nightly news — inflation, inflation, inflation. The Fed is worried about that.”
Mark Vitner, a senior economist at Wells Fargo
“The Fed had fallen behind the curve in terms of its rhetoric and actions in regard to containing the threat from inflation. In the past, it has proven very difficult to slow inflation when the economy is at full employment and real GDP is growing faster than its potential. That is where we will be in 2022.”
On the Crash in Shimao Bonds Stoking Contagion Fear, Bailout Speculation
Dhiraj Bajaj, head of Asia credit at Lombard Odier
“A collapse of Shimao will be far worse than Evergrande in our opinion. Evergrande was known to be a highly leveraged entity, but if high quality firms across hospitality, services and development focused on high quality markets such as Shanghai can’t survive this crisis, then global confidence will be permanently lost.”
Bloomberg Intelligence analysts Andrew Chan and Daniel Fan
“Should this weak sentiment cross over to IG-rated private developers, sector sales could collapse, triggering more defaults . The state may therefore need to increase its efforts to turn around sentiment.”
On Record $226tn Global Debt at Risk as Rates Rise – IMF
“The risks will be magnified if global interest rates rise faster than expected and growth falters. If the public and private sectors are forced to deleverage simultaneously, growth prospects will suffer.
On New Era of Bond-Market Volatility Beginning as Fed Fights Inflation
Kevin Flanagan, head of fixed-income strategy at WisdomTree Investments.
“Fed meetings are going to be fun again, starting this week. They have put an increased pace of tapering on the table and the question for next year is what else is coming.”
Bob Miller, head of Americas fundamental fixed income at BlackRock
“There is a wide dispersion of outcomes if they have to fight inflation. If the Fed adopts a fighting inflation stance, volatility stays high with the risk of short-circuiting another two years of solid growth for the economy.”
Kathryn Kaminski at AlphaSimplex Group
“One of the things people often forget — which is one reason I think there’s going to be more volatility — is that bonds behave very differently in an inflationary environment than they do in an deflationary environment… Bond volatility was much higher in the 1970s when inflation was much higher. And on average, stock-bond correlations were positive during the inflationary environment of the 1970s.”
