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15 November 2022 (Tuesday) | 9am-5pm

US equity markets closed almost lower again with the S&P ending 0.5% lower and Nasdaq closing 1.4% lower. Sectoral losses were led by Consumer Discretionary and Real Estate, down 1.8-2.3%. US 10Y Treasury yields eased 3bp higher to 1.82%. European markets recovered with the DAX, CAC and FTSE up 0.4%, 0.6% and 1.1%. Brazil’s Bovespa closed 1.2% higher. In the Middle East, UAE’s ADX was up 0.2% and Saudi TASI closed flat . Asian markets have opened broadly higher with Shanghai, STI and Nikkei up 0.1%, 0.3% and 2.1% while HSI was down 0.8%. US IG CDS spreads were 2.1bp wider and HY CDS spreads were 10.1bp wider, EU Main CDS spreads were 1.9bp wider and Crossover CDS spreads were 8.4bp wider. Asia ex-Japan CDS spreads were 2.2bp tighter.

US Q4 GDP grew 6.9% and 2021 annual growth came at 5.7%, the strongest since 1984. US initial jobless claims fell by 30k to 260k. Dollar bonds of Ukraine and Russia moved higher on indications of easing tension where the Kremlin signaled despite it would be possible to continue a dialogue with the US over Ukraine. 

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New Bond Issues

New Bond Issues 28 Jan-1

The Republic of Chile raised $4bn via a three-tranche sustainability deal. It raised:

  • $1.5bn via a 5Y bond at a yield of 3.506%, 40bp inside initial guidance of T+150bp area.
  • $1.5bn via a 12Y bond at a yield of 4.055%, inside initial guidance of T+low 200bp area.
  • $1bn via a 30Y bond at a yield of 4.055%, 30bp inside initial guidance of T+225bp area. The new bonds are priced 27.5bp wider to its existing 3.5% green 2050s that yield 3.78%.
The bonds have expected ratings of A1/A. An amount equal to the proceeds from the sale of the notes will be invested into projects that may qualify as “eligible green expenditures” and “eligible social expenditures” under Chile’s Sustainable Bond Framework.

Sino-Ocean Group raised $200mn via a tap of 2.7% 2025 green bond at a yield of 6.4%, 10bp inside initial guidance of 6.5% area. The bonds have expected ratings of Baa3/BBB– (Moody’s/Fitch. The bonds are issued by Sino-Ocean Land Treasure IV Ltd.

 

New Bonds Pipeline

  • Kia Corp hires for $ green bond
  • Zhengzhou Airport Economy Zone Xinggang Investment Group hires for $ bond
  • Dongtai Communication hires for $ 65mn 180-day bond
  • Kalyan Jewellers India hires for $ 5Y bond
  • Electricity Generating (EGCO) hires for $ 7Y or 10Y bond
  • Petron hires for $ 7NC4 bond

 

Rating Changes

 

Term of the Day

Tap

A ‘tap’ refers to a bond issuance wherein the issuer issues more of an existing bond rather than issue a new bond. Taps, also known as re-openings, are common in the bond market and can be quoted as a price or yield during the initial price guidance stage of issuance. Sino-Ocean Group raised $200mn via a tap of 2.7% 2025 green bond.

 

Talking Heads

On the view that the Fed will tighten monetary policy further to tackle inflation\

David Kelly, chief global strategist at JPMorgan Asset Management

“[The Fed] are behind the curve and they are guilty of being too easy for too long.”

Aneta Markowska, chief U.S. financial economist at Jefferies

“The market doesn’t believe the economy can survive 6-7 hikes in the next 18 months.” “This inflation problem is not going to go away on its own,” she said. “The Fed is going to ultimately have to do something about it and I don’t think 7 hikes are going to do it. It’s going to take a lot more than what the market has already priced to get back to 2% inflation on a sustained basis.”

George Goncalves, head of U.S. macro strategy at Mitsubishi UFJ Financial Group

“Powell was much more hawkish than expected.” “The Fed is clearly behind the curve and is using every opportunity to get back on sides. We still believe this ultimately will result in a policy error in the other direction. But for now they mean business in fighting inflation.”

Stephen Roach, faculty member at Yale University former Morgan Stanley economist

“The Fed is pouring the fuel on an economy with the lowest unemployment rate in 40 years at a time when the inflation rate is probably more than double what it was in earlier periods of excessive monetary accommodation.” “The Fed is going to have to do a heck of a lot more tightening.”

On getting useful economic signals from the bond market – Stanley Druckenmiller, former chairman and president of Duquesne Capital

“If the Fed behaves as [Fed] Chairman [Jerome] Powell suggested they will in the months ahead, we can heed the message of the bond market again.” “Pre the tampering period, the bond market and yield curve was certainly a much better predictor of future economic trends than me and 95% of economists.”

On the value in Ghana’s bonds despite selloff

Joe Delvaux, money manager at Amundi

“There will be a continuation in the performance of the bonds if we can see the fiscal targets set by the government are being met.” “Certainly the intentions are good and it’s one of the reasons why the bonds have been rallying, but it will come down to the question: can they deliver?”

Calvyn Kirsten, emerging markets trader at JPMorgan Chase Bank

“There has been engagement from a variety of clients, which I think shows investor willingness to re-engage with the trade here.” “The market has gone very quickly from pricing a severely distressed scenario. Once the finance ministry does what it says, then that should be taken off the table.”

Mark Bohlund, a senior credit research analyst at REDD Intelligence

“The majority of investors are likely to remain wary about the government’s ability to cut costs.” “There is very little room to make substantial cuts in response to the likely underperformance of the very highly-set revenue targets.”

Richard Briggs, money manager at GAM Holdings

“We view valuations as attractive and we expect Ghana to regain market access next year.” “We know that the fiscal side in Ghana is challenging but foreign-exchange reserves are reasonably ample and their external financing needs are not huge.”

 

Top Gainers & Losers – 28-Jan-22*

BondEvalue Gainer Losers 28 Jan

 

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