US equity markets rose on Wednesday, with the S&P and Nasdaq up 1% and 1.5% respectively. Sectoral gainers were led by Consumer Discretionary, up 2.8%, followed by Energy and IT, up over 1.5% each. US 10Y Treasury yields were 1bp lower to 2.76%. European markets ended higher as well with the DAX, CAC and FTSE up 0.6%, 0.7% and 0.5% respectively. Brazil’s Bovespa closed flat. In the Middle East, UAE’s ADX was up 0.9% and Saudi TASI was up 2.3%. Asian markets have opened weaker today – Shanghai, HSI and Nikkei were down 0.9%, 1.5%, 0.5% respectively while STI was up 0.2%. US IG CDS spreads tightened 4.4bp and HY spreads tightened 21bp. EU Main CDS spreads were 3.8bp tighter and Crossover spreads were 16.2bp tighter. Asia ex-Japan CDS spreads were 4.7bp tighter.
The FOMC’s May meeting minutes showed that officials agreed they need to hike rates in steps of 50bps at their next two meetings, which gives them room to alter rates later if needed.
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New Bond Issues
- Thai Exim Bank $ 5Y at T+160bp area
- Zhangzhou Transportation Development Group $ 3Y at 5.4% area
Barclays raised €1bn via a 4NC3 bond at a yield of 2.885%, 22bp inside initial guidance of MS+190bp area. The senior unsecured bonds have expected ratings of Baa2/BBB/A, and received orders over €2.3bn, 2.3x issue size. Proceeds will be used for general corporate purposes and may be used to strengthen further its capital base. Its 2.885% coupons will reset at 1Y MS + 168bp, if not redeemed on its optional redemption date of Jan 31, 2026.
Allianz raised €1.25bn via a 30.1NC10.1 bond at a yield of 4.252%, 15bp inside initial guidance of MS+270bp area. The subordinated Tier 2 bonds have expected ratings of A2/A+, and received orders over €1.9bn, 1.5x issue size. The proceeds will be used for general corporate purposes, including the refinancing of existing debt. Its 4.252% coupons are fixed until the first reset date of July 5, 2032, and will reset at 3m Euribor+255bp if not redeemed.
China Merchants Port raised $500mn via a 5Y bond at a yield of 4.007%, 45bp inside initial guidance of T+175bp area. The senior unsecured bonds are rated Baa1, and received orders over $3.3bn, 6.6x issue size. Banks and financial institutions took 59%, fund and asset managers 29%, corporates 10%, and insurers and private banks 2%. Asia accounted for 96% and EMEA 4%. There is a change of control (Term of the Day, explained below) event clause at 101. Proceeds will be used for general corporate needs, including debt refinancing.
New Bonds Pipeline
Zhangzhou Transportation Development Group hires for $ Green bond
- Busan Bank hires for $ Social bond
- Kookmin Card hires for $ Sustainability bond
- Continuum Energy Aura hires for $ Green Bond
- Jubilant Pharma hires for $ bond
- Sael Limited hires for $ 7Y Green bond
- Moody’s downgrades Jiangsu Zhongnan’s ratings to Caa2/Caa3; outlook remains negative
- French Food Service Provider Elior Group Downgraded To ‘B+’ On Slower-Than-Expected Recovery; Outlook Stable
Term of the Day
Change of Control
Change of control is a covenant in bond offerings, mentioned in the bond’s prospectus where there typically is a change in ownership of the issuer. This can lead to structural changes in the bond like a coupon step-up or in the form of a ‘change of control put’ where bondholders have the option to sell the bonds back to the issuer at a pre-defined price upon the occurrence of the change of control event.
“As we assess the future digital financial system, it is prudent to consider how to preserve ready public access to safe central bank money, perhaps through the digital analogue of the Federal Reserve’s issuance of physical currency… We recognize there are risks of not acting, just as there are risks of acting
Guido Chamorro, co-head of emerging-market hard-currency debt at Pictet Asset Management
“It is good news that Sri Lanka is placing a priority on talks with the IMF. The sooner the better, but I think it is difficult to put an exact date on a resolution. These negotiations typically end up taking a bit longer than initially expected.”
“If inflation goes up and nominal interest rates do not anything like as much, that effectively is a decline in real interest rates. It’s extraordinary that this should have been allowed… It’s a very, very difficult situation for the ECB — it’s harder in many ways for the ECB than it is for the Fed — because it’s much more, as Philip rightly said, a supply shock for Europe rather than for the US. Dealing with a supply shock is a great deal more difficult than dealing with a demand shock… If you’ve got inflation at 7.5% and maybe rising, that already has given a massive hit to your standards of living… Virtually all the central banks including the ECB are an awful long way behind the curve.”
“As we look at the global GDP … it’s hard right now to see how we avoid a recession… The idea of energy prices doubling is enough to trigger a recession by itself