Advanced Theory & Practice of Bonds

IBF Recognized Under FTS
1-2 December 2021

Two-day immersive course on bonds designed for private bankers and advisors. 90% funding* available to eligible company-sponsored candidates.

US markets remained near record highs with the S&P gaining 0.1%. Nasdaq on the other hand was down 0.2%, ending the first half of the year up 12%. S&P extended gains to the fifth consecutive month, up 14% YTD. Cyclical stocks closed higher on Wednesday – Energy was up 1.3% and Industrials up 0.8%, while IT was marginally down 0.1%. US ADP private payrolls beat expectations and increased by 692k vs estimates of 550k. US 10Y Treasury yields tightened 1bp to close at  1.47%. European markets declined on Wednesday – DAX was down 1%, CAC down 0.9% and FTSE down 0.7%. US IG and HY CDS spreads were 0.1bp tighter each. Euro-zone inflation cooled to 1.9% in June from 2.0% in May. EU main and crossover CDS widened 0.5bp and 2.2bp respectively. Saudi TASI was down 0.1% and Abu Dhabi’s ADX was up 1.1%. Brazil’s Bovespa was down 0.4%. Asian markets are mixed – Singapore’s STI is up 0.3%, HSI down 0.6%, Nikkei down 0.4% and Shanghai largely flat as the Caixin/Markit manufacturing Purchasing Managers’ Index for June was lower at 51.3 vs 52.0 in May. Asia ex-Japan CDS spreads were 0.3bp wider.

 

New Bond Issues

New Bond Issues 1 Jul-1

UniCredit raised €750mn ($889mn) via a Perpetual non-call 7Y (PerpNC7) AT1 bond at a yield of 4.45%, 37.5bp inside initial guidance of 4.875% area. The bonds were rated Ba3 and received orders over €1.75bn, 2.3x issue size. If not called on the first reset date of June 3, 2028, the coupon resets then and every five years thereafter to the 5Y Mid-Swaps + 460.6bp. The bonds are callable from and including December 3, 2027 till the first reset date, and each coupon date thereafter. A trigger event occurs when the CET1 Ratio of UniCredit Group or the Issuer at any time falls below 5.125% or the then applicable ratio. The new perps priced 22bp tighter vs. its older 3.875% perps callable in June 2027.

Oxley Holdings raised S$70mn ($52mn) via a 3Y bond at a yield of 6.9% in-line with the initial guidance. The bond is unrated. Wholly owned subsidiary Oxley MTN is the issuer and Oxley Holdings the guarantor. There is a 25-cent rebate for private bank orders. Proceeds will be used to refinance debt, and for working capital and general corporate purposes.

Vena Energy raised $175mn via a tap of its green 3.133% 2025s at a yield of 2.53%, 15bp inside the initial guidance of T+180bp area. Vena Energy Capital is the issuer and Vena Energy Holdings, Vena Energy (Taiwan) Holdings and Zenith Japan Holdings are guarantors. The bond is rated BBB- and booked orders over $295mn, 1.7x issue size. Asia took 24%, EMEA 69%, and offshore US 7%. Fund managers booked 87%, banks and private banks 7%, and pension funds and insurers 6%. Proceeds will be used to refinance corporate loans for eligible green projects by guarantors under Vena Energy’s green financing framework.

 

New Bond Pipeline

  • Hyundai Assan Otomotiv Sanayi hires for US$ 5yr bond with HMC guarantee
  • Korea Gas Corp hires for $ 5Y and/or 10Y bond
  • Laos plans $ bond offering; to repay 2021s

 

Rating Changes

 

67% Dollar Bonds Trade Higher in Q2, Staging a Recovery from Q1

The second quarter of 2021 saw a significant reversal in fortunes after a gloomy first quarter. 67% of dollar bonds in our universe delivered a positive price return ex-coupon in Q2 as compared to 74% of dollar bonds delivering negative returns in Q1. Meanwhile, the month of June saw a continuation of May’s upward trend with 54% of the bonds delivering positive price returns. The US 10Y Treasury yield began Q2 at ~1.74% and later dipped to end Q2 at 1.44%, despite a pick-up in inflation across the US to a decade high of 3.4%. This is in contrast to Q1 which saw the 10Y yield rise 25bp, which dragged investment grade bonds’ performance. The US 2s10s curve flattened to ~122bp, as compared to ~155bp at the end of Q1. This comes as the Fed sounded a slight hawkish tone in its June FOMC meeting when the new dot plot revealed at least two rate hikes in 2023 vs. no hikes till 2024 in the March meeting.

Price Return - Q2-png

Click on the button below to read the full quarter-end report with box and whisker plots of investment grade and high yield bonds, largest deals and top gainers and losers.

Read the full Q2 2021 report

Term of the Day

Structural Subordination Risk

Structural subordination risk refers to the risk that most of the claims of the holding company are at its operating subsidiaries where these claims have a priority over the claims at the holding company in the event of a bankruptcy. Essentially, a lender to a parent is structurally subordinated to other lenders who have lent money to the subsidiary. Hence, lenders to the parent company will not have access to the subsidiary’s assets until the subsidiary’s creditors have been paid back first.

Evergrande’s B3 senior unsecured rating downgrade by Moody’s reflects structural subordination risk.

 

Talking Heads

On the Fed’s intention to avoid a repeat of taper tantrum – Robert Kaplan, Federal Reserve Bank of Dallas President 

“I want it to get out into the market, and I think this debate we’re having at the FOMC, some of it publicly, is good.” “People are on notice that these adjustments are coming, the only question is when.” “These purchases are very adept at stimulating demand, but we’ve got plenty of demand,” Kaplan said. “Our problem is supply, and these purchases are not very effective when you’ve got a supply issue.”
In a note by Doug Peta and Sara Porrello, BCA Research strategists and their team
“We are not complacent about the potential for trouble and investors shouldn’t be, either.”
Mark Haefele, chief investment officer for global wealth management at UBS Group AG
“We advise investors to brace for bouts of volatility ahead.”
Viktor Shvets, head of Asian strategy at Macquarie Capital
“Essentially one should be ready for high volatility of outcomes, as churning within and between asset classes and styles increases, even if headline indices remain flattish.”
Diane Young, senior portfolio manager at Addenda Capital Inc
“There is nothing to prevent [sustainability-linked bond] asset class from becoming the new normal in Canada.” “Quite frankly we have a unique economy and asset base and we need to support the idea of transition. SLBs as a component of overall debt will grow materially in the near future.”
Max Chan, vice president of treasury of Enbridge
“The capital is forming very rapidly around it,” said Chan. “Not all but many of the investors we have been speaking to in the last few days have dedicated SLB funds or ESG-focused funds. Right now it’s a bit of supply issue. There are not enough issuers.”
Sean Taor, head of European debt capital markets at RBC
“I think blockchain has a real future in debt capital markets.” “If you can use blockchain from start to finish, you take out a lot of the costs, a lot of the risks in terms of counterparty and settlement risks.”
Matthew McDermott, head of digital assets at Goldman Sachs
“It’s essentially a glorified database.” “This technology reduces the number of intermediaries involved in any given transaction.”
Denis Coleman, co-head of the global financing group at Goldman Sachs
“This is just the very start of a journey, but you could see the democratisation of bond markets,” he said.
Kevin McPartland, head of market structure at Coalition Greenwich
“Distributed ledgers will have a role to play in helping markets become more liquid and transparent,” he added. “But some of this is just hype around a new technology. I’m not sure it’s quite as revolutionary as it’s sometimes made out to be.”

Top Gainers & Losers – 01-Jul-21*

BondEvalue Gainer Losers 1 Jul-1
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