US equity markets ended lower, with the S&P and Nasdaq down 0.4% and 1% respectively. Energy and Financials led the gainers, 1.2-1.4% while Consumer Discretionary and IT led the losers, down over 1.7% and 1% each. US 10Y Treasury yields were up 1bp to 1.72%. European markets were lower with the DAX and CAC down 0.7%, 0.4%, while FTSE was up 0.5%. Brazil’s Bovespa was up 1.1%. In the Middle East, UAE’s ADX was down 0.2% while Saudi TASI was up 1.1% on Sunday. Asian markets have opened broadly higher today – Shanghai, HSI and STI were up 0.3%, 0.7% and 0.8% respectively while Nikkei was closed. US IG CDS spreads were 0.9bp wider and HY CDS spreads widened 4.6bp. EU Main CDS spreads were 0.6bp wider and Crossover CDS spreads were 1.1bp wider. Asia ex-Japan CDS spreads tightened 0.9bp.
US NFP for December came at 199k, significantly lower than the expected 425k. The Unemployment Rate came in lower at 3.9% vs. 4% expected.
New Bond Issues
- KNOC $ 3.25/5.25/10.25Y at T+80/95/120bp area
- Shriram Transport Finance $ 3.5Y social at 4.45% area
- Zhenjiang State-owned Investment Holding $ 364-day at 1.98% area
- Fuzhou Digital Economy Investment Group $ 3Y at 2% area
Fuzhou Digital Economy Investment Group has postponed its bond deal that was launched late last week to raise a 3Y dollar bond with an initial guidance of 2% area. The bonds are unrated. Proceeds were to be used for project construction and general working capital. The proposed bonds were supported by a letter of credit from ICBC Jiangxi branch. According to a source, the issuer and the SBLC bank have different views on pricing, which may be the reason for the postponement. Further details were not available.
New Bonds Pipeline
- Guangzhou Development District hires for $ green bond
- State Bank of India hires for $ 5Y bond
- China Chengtong HK hires for $ bond
- Link REIT hires for $ 10Y bond
- Beijing Gas Group hires for $ green bond
- HKT Group hires for $ 10Y bond
- Woori Bank hires for $ sustainability bond bond
- China Oilfield Services Limited hires for $ bond
Rating Changes
Term of the Day
Rising Star
Rising stars are companies that have recently seen credit rating upgrades that pull its rating to investment grade category from its previous junk or high yield category. They are termed as rising stars as their financial and/or operational metrics show an improving trend. The opposite of rising stars are fallen angels, which are issuers that have been recently downgraded to junk category from its previous investment grade rating category. Winnie Cisar of CreditSights sees an increase in the number rising stars emerging in 2022.
Talking Heads
On bond traders facing the steepest new-year rise in nearly two decades
Priya Misra, interest-rate strategy chief at TD Securities
“I’m already a bit sleep deprived — which I didn’t expect this early in the year.” “So pandemic concerns are still there. But instead of lower rates and Fed easing, we are grappling with how fast the Fed exits and how high rates can go higher. That can make anyone’s head spin.” “I haven’t lived through many episodes of a hawkish Fed.”
Salman Baig, an investment manager at Unigestion SA
“It’s been a bit of wicked market action the last couple of days.”
Chris Rands, senior portfolio manager at Yarra Capital Management
“I wouldn’t say I was surprised at the extent of the Treasury move but it was a pretty hectic start to the year.” “It really didn’t help on the liquidity front too — everyone was still pretty much on holidays. That just exacerbated the moves a lot more.”
Kelsey Berro, fixed-income portfolio manager at JPMorgan Asset Management
“This selloff is based on real yields, and that tends to get the equity market’s attention.” “But it’s against the backdrop of still strong growth. It’s not sinister. It’s a rationale reaction to the Fed’s pivot.”
Rosanna Scarpati, director at Dealerweb Inc
“We all expected the rate increases coming into ‘22,” Scarpati said. “But Fed minutes really made it concrete on how much to expect this year.”
Kevin Flanagan, head of fixed-income strategy at WisdomTree
“You do get the sense we’ve seen this movie before, but the big difference from 12 months ago is that this time the Fed is driving the market by signaling they want to tighten policy.”
Gargi Chaudhuri, head of BlackRock Inc.’s iShares investment strategy, Americas
“The minutes are a reiteration of a Fed at a juncture that rate normalization needs to take place.” “Rates will not rise in a straight line and we think buyers will turn up and make for more of a two-way market as the 10-year nears 2%.”
Colin Robertson, head of fixed income at Northern Trust Asset Management
“Some investors are really getting bearish, but we expect inflation starts falling during the first quarter and don’t see more than three rate hikes this year.” “The 10-year looks attractive at these levels and if we get to 2%-2.25%, investors will be rewarded over the next year.”
Steven Blitz, chief U.S. economist at TS Lombard
“The real difference between pre-Covid and today is wage growth, and this is what the Fed is keying on.” “A higher base inflation rate fueled by better wage growth seems baked-in,” and “this is what the Fed is reacting to.”
“Firms that may be up next in the rising-star category should see spreads tighten as investors anticipate more upgrades.” “A lot depends on how restrictive policy looks and how deliberate the Fed is in their approach.”
Pooja Kumra, senior European rates strategist at TD Securities
“Increased duration supply is likely to support the bearish move in rates.”
Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence
“Rate hikes don’t mean sellers of rates volatility will lose this year, given the current elevated levels.” “The potential for higher equity volatility this year has also boosted the cost of hedging in the options market given investor demand for protection.”
On ESG bond market set for upward trajectory in 2022 after record performance last year
Julien Brune, head of DCM solutions and advisory at Societe Generale
“The one trillion mark seemed unachievable still a couple of years ago.” “It is a landmark figure showing an extraordinary increase in investor and issuer awareness of the importance of ESG issues.”
Constance Chalchat, global markets chief sustainability officer at BNPP
“We are seeing extremely strong sustainable finance appetite from investors. The opportunity is there for 2022 to be a milestone year; over 40% of the world’s assets are onto net-zero trajectories and the evolution of the EU Taxonomy will increase the asset base eligible for green issuance.” She expects “sovereign and corporate action on energy transition [to] foster the growth of new green assets”.
Top Gainers & Losers – 10-Jan-22*
