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US equity markets ended lower with the S&P and Nasdaq down 1.4% and 2.5% respectively. Most sectors were in the red led by IT and Consumer Discretionary down 2.7% and 2.1%. US 10Y Treasury yields were up 1bp to 1.75%. European markets were mixed with the DAX and FTSE up 0.1% and 0.2% while CAC was down 0.5% respectively. Brazil’s Bovespa was down 0.2%. In the Middle East, UAE’s ADX was up 0.7% and Saudi TASI was up 1%. Asian markets have opened broadly lower following losses on Wall Street – Shanghai, HSI and Nikkei were down 0.7%, 0.9% and 1.9% while STI was up 0.4%. US IG CDS spreads were 1.2bp wider and HY CDS spreads also tightened 1.5bp. EU Main CDS spreads were 0.1bp wider and Crossover CDS spreads were 1.9bp tighter. Asia ex-Japan CDS spreads widened 2.2bp.
US jobless claims for the prior week came at 230k vs expectations of 215k.
IRFC raised $500mn via a 10Y green bond at a yield of 3.57%, 25bp inside initial guidance of T+210bp area. The bonds have expected ratings of Baa3/BBB–/BBB–, and received orders over $1.65bn, 3.3x issue size. Proceeds will be allocated to eligible green assets under IRFC’s green financing framework. The new bonds were priced 20bp wider than its older 2.8% non-green 2031s that currently yield 3.37%.
CCB raised $2bn via a 10NC5 tier 2 bond at a yield of 2.901%, 30bp inside initial guidance of T+170bp area. The bonds have expected ratings of BBB+/BBB+ (S&P/Fitch), and received orders over $2.6bn, 1.3x issue size. Banks and private banks took 65%, asset and fund managers 24%, insurance companies and pension funds 6% and sovereign wealth funds 5%. Asia bought 97%, EMEA 2% and offshore US 1%.
JSW Infrastructure raised $400mn via a 7Y sustainability-linked bond (SLB) at a yield of 4.95%, 30bp inside initial guidance of 5.25% area. The bonds have expected ratings of Ba2/BB+ (Moody’s/Fitch), and received orders over $1.35bn, 3.4x issue size. Proceeds from the issuance will be used for debt repayment and capital expenditure. The SLBs are guaranteed by subsidiaries JSW Jaigarh Port, JSW Dharamtar Port Private, South West Port, JSW Paradip Terminal Private and Paradip East Quay Coal Terminal Private. The KPIs on the bonds are a 15% reduction from fiscal 2021 levels in Scope 1 and Scope 2 greenhouse gas emissions to 1.06kg or lower per ton of cargo handled. If the target is not met by September 30, 2026, JSW Infrastructure will pay a 25bp coupon step-up each year until maturity.
EIG-led investors in Aramco Pipelines raised $2.5bn via a two-tranche amortizing bond deal. It raised:
CaixaBank raised €1bn via a 6NC5 social bond at a yield of 0.673%, 18bp inside initial guidance of MS+80bp area. The bonds have expected ratings of Baa1/A-/A-, and received orders over €1.3bn, 1.3x issue size. Proceeds will be used for eligible social projects under CaixaBank’s Sustainability Development Goals (SDG) framework, aligned with ICMA Social Bond Principles.
CIMB Bank raised $500mn via a 5.5Y SDG bond at a yield of 2.189%, 30bp inside initial guidance of T+100bp area. The bonds have expected ratings of A3/A– (Moody’s/S&P). Proceeds will be used to fund or refinance new or existing businesses, projects and/or products that comply with the CIMB Group SDG bond and sukuk framework.
Mitsui Fudosan raised $300mn via a 10Y green bond at a yield of 2.572%, 30bp inside initial guidance of T+115bp area. The bonds have expected ratings of A3/A (Moody’s/S&P). Proceeds will be used to finance existing and future eligible green projects. Mitsui Fudosan plans to use a substantial majority of the net proceeds to refinance 50 Hudson Yards, a property in development in New York City that is seeking LEED Gold certification.
Fuzhou Digital Economy Investment Group raised $98mn via a 3Y bond at a yield of 1.98%, 12bp inside initial guidance of 2.1% area. The bonds are unrated. Proceeds will be used for project construction and general working capital. The bonds are supported by a letter of credit from ICBC Jiangxi branch. This deal was relaunched after the issuer postponed the deal announced at 2% area on January 6, and after making slight changes to the bookrunner list.
Duration or Macaulay Duration is the weighted average time until repayment of the invested amount. It is measured in years and is less than the final maturity of coupon bearing vanilla fixed rate bonds. The higher the duration, the higher will be the change in a bond’s price for a given change in interest rates. It is considered a better measure of risk than using final maturity, as it gives weightage to the coupon payments as well. Higher the tenor, greater will be the bond’s duration and higher the coupon, lower will be the bond’s duration. For very long tenor bonds like century (100Y) bonds or high coupon bonds, the duration is significantly less than the years to maturity. For zero coupon bonds, its duration is equal to its maturity.
“We kept cutting our exposure to Chinese developers since early last year, but we are now cautiously increasing positions in their dollar bonds”.
“I don’t think this Federal Reserve and this leadership has the stamina to act decisively. They’ll act incrementally… In order to turn the market around to a more non-inflationary attitude, you have to shock the market. You can’t raise interest rates bit-by-bit… It requited a lot of fortitude in 1979 to do what the Fed did. The longer the Fed takes to tackle a high rate of inflation, the more inflationary psychology is embedded in the private sector — and the more it will have to shock the system”.
On Treasury Market Staging Reprieve Rally as Yield Surge Lures Cash
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets
“The initial bond-bearish euphoria appears to be waning. But the combination of stability in other asset classes and further progress toward the cycle’s first hike will steadily embolden those anticipating higher yields.”
Jason Bloom, head of fixed income and alternatives ETF strategies at Invesco
“A 10-year Treasury yield rising toward 2.25% makes sense with the Fed indicating that it will make a fast start to tightening this year. The market thinks the Fed will not raise rates beyond 2.5% without triggering a recession… We won’t really know what inflation looks like, and whether the Fed is behind the curve, until the end of this year”
Garry Evans, chief global asset allocation strategist at BCA Research
“There is a risk that wages go higher and the Fed starts worrying… the market starts pricing in a scenario that the Fed has lost control of inflation.”
On Fed’s Waller Says Three 2022 Rate Hikes ‘Still a Good Baseline’
“Three hikes is still a good baseline; we will have to wait and see what inflation looks like in the second half of the year. If it continues to be high, the case will be made for four, maybe five, hikes… if inflation abates you could actually pause and not even go the full three… If inflation is just stubbornly high through the first half of this year we’re going to have to do a lot more”.