US markets started the week with the biggest drop of the year amid a sell-off over concerns over rising Delta variant cases. S&P and Nasdaq shed 1.6% and 1.1% respectively adding to the 0.8% drop on Friday. The new Covid-19 numbers seem to be overshadowing the strong earnings with sectors across the board experienced a whitewash. Energy extended its losses by another 3.6%, Financials, Materials and Industrials were all down more than 2%. Rest of the sectors with the exception of Consumer Staples were down more than 1%. Airlines and Cruise stocks fell more than 5% with Big Tech shares not spared either. US 10Y Treasury yields tightened by 7bp to 1.21% after it recovered from 1.19% – the lowest in the last five months. Germany and Belgium have started clearing the devastation caused by extensive flooding. European indices also nosedived ~2.5% – the DAX, CAC and FTSE were down 2.6%, 2.5% and 2.3% respectively. US IG CDS spreads widened 2.2bp and HY widened 10.2bp. EU Main spreads widened 1.6bp and Crossover spreads widened 8.6bp. Brazil’s Bovespa was down 1.2%. Gulf markets were spared as they were closed on account of Eid. The oil prices dropped ~2% after the successful OPEC+ deal. In Asia, Nikkei, Shanghai and HSI were down more than 0.5%. Asia ex-Japan CDS spreads were 0.6bp tighter.

Navigating The Bond Markets by Leveraging the BEV App | July 28

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New Bond Issues

New Bond Issues 20 Jul-1

ICBC International Holdings raised $600mn via a 3Y bond at a yield of 1.114%, 45bp inside initial guidance of T+120bp area. The bonds have expected ratings of A2 and received orders over $2.5bn, 4.25x issue size. Horse Gallop Finance is the issuer and the investment banking arm of Industrial and Commercial Bank of China is the guarantor. Proceeds will be used for general corporate purposes.

Redco Properties raised $100.8mn via a tap of their 11% 2022s at a yield of 10%. The bonds are rated B-/B+. Proceeds will be used to refinance debt in accordance with a sustainable finance framework. The tap was priced 9bp over its original 11% 2022s that yield 4.91%. Its 11% 2022s saw its yield move 7bp higher yesterday after the pricing of the tap.

Road King Infrastructure raised $500mn via a 5Y non-call 3Y (5NC3) green bond at a yield of 5.125%, 37.5bp inside initial guidance of 5.5% area. The bonds have expected ratings of Ba3/BB- and received orders over $2.7bn, 5.4x issue size. APAC bought 92% and EMEA 8%. Fund/asset managers were allocated 64%, private banks 29%, banks and financial institutions 5% and corporates and governments 2%. RKPF Overseas 2020 (A) is the issuer and the Hong Kong-listed parent is the guarantor. Proceeds will be used for funding or refinancing eligible projects undertaken by Road King Infrastructure and its subsidiaries. The new bonds were priced 26.5bp over its 5.2% bonds due January 2026 callable in January 2021 that yield 4.86%.

Anton Oilfield raised $150mn via a 3.5NC2.5 at a yield of 9.25%, unchanged from initial guidance. The bonds have expected ratings of B1. Proceeds will be used to optimize the company’s debt structure and for debt refinancing and general corporate purposes. The company also announced the result of the exchange offer for its $289.9mn 7.5% 2022s, subject to a cap of $150mn. A total of $61.463mn in principal amount, or 21.2%, was validly tendered for exchange for the new 3.5NC2.5s. Under the exchange offer, holders of the 2022s will receive $1,007.5 for each $1,000 in principal of the new 3.5NC2.5 bonds, plus accrued and unpaid interest. The company said earlier the minimum yield for the new 3.5NC2.5 bonds will be 8.75% per annum.

Sunkwan Properties Group raised $210mn via a 364-day green bond at a yield of 13% unchanged from initial guidance. The notes are unrated. The notes have received an HKQAA green and sustainable finance pre-issuance stage certificate. Proceeds will be used for debt refinancing and general corporate purposes in accordance with the issuer’s green finance framework.

Huijing 364-day raised $138mn via a 364-day note at a yield of 12.5%. The bonds were issued alongside an exchange offer.


New Bonds Pipeline

  • Temasek subsidiary Vertex Venture hires DBS for S$ bond investor calls

  • Nonghyup Bank hires for $ social bond

  • CSSC (Hong Kong) Shipping hires for $ green bonds; calls today

  • Lai Sun Development hires for $ bond; calls starting today

  • Aluminum Corporation of China hires for $ bonds; calls today


Rating Changes


Term of the Day

Call Option

A call option gives the buyer of the option the right but not the obligation to buy the underlying instrument at a particular price known as the strike price at expiration. Call options in bonds are in the hands of the issuer where the issuer has an option to redeem the bond before its maturity leading to a cash outflow. McLaren announced that it will exercise its call on its USD 5.75% 2022s and its GBP 5% 2022s, callable on August 18 at 100 and July 29 at 101.3 respectively.


Talking Heads

“The market appears to be looking further ahead to an eventual return to contained inflation and growth.” “I believe we’ve seen the peak in yields for this cycle,” Tipp said. “With the resumption of the long-term bull market I think it’s going to be difficult to make money being short bonds.”

On investors fleeing stocks and piling into bonds as COVID-19 cases surge

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance

“The markets suffered a summer swoon today with COVID fears again at the forefront of investors’ minds.” “Despite the negative tone weighing on markets, we remain optimistic that the economy is on a strong footing and, although the path will be uneven, the trend is still toward increasing growth and higher corporate profits.”
Peter Essele, head of investment management for Commonwealth Financial Network
“Fear of stagflation will be a major concern for investors if a resurgence in COVID infections causes economies to slow while consumer prices continue an upward trajectory.”
Russ Mould, investment director at brokerage AJ Bell
“The big concern for the market is whether we are going to see a slowdown in the global economic recovery, and this could be the overriding force which results in a bad period for equities in the weeks ahead.”
“One of the reasons bonds have rallied so much is that institutional investors have rebalanced out of equities, which have had a huge run, into fixed income.” “The recent weakness is justified on a short-term basis. If you look at the issue with the delta variant and Covid, it is a short-term concern, but if you look out to the end of the year most of the Western economies will have immunity in the 75% to 80% range.”
Jose Manuel Restrepo, Colombia’s Finance Minister
“They expressed their interest in continuing to invest in our country, continue to see that Colombia generates and has opportunities,” he said. “We are a responsible country and we are responding to the need for stability in public finances.”
Alejandro Arreaza, analyst at Barclays Capital Inc
“The economy is recovering faster than what the market had been expecting, and that can also gradually help improve the fiscal situation,” Arreaza said. The selloff earlier this year “was somewhat overdone and we’re seeing a correction.”
Gorky Urquieta, a money manager at Neuberger Berman
“Colombia has a long track record of being a very stable, predictable country,” he said.
Luky Alfirman, Indonesia’s finance ministry’s director general for budget financing and risk management
“The strategy of using excess cash to reduce issuance is an effort to maintain bond yields and reduce interest expenses.” “In managing debt, the government applies a prudent, flexible and opportunistic strategy.”
Andrew Wood, S&P director
“Presently, we expect the government will still attempt to quickly consolidate its finances from 2022 onwards.” “That the fiscal deficit is meaningfully curtailed by 2023 and 2024 is a very important trend that we will be watching for the sovereign ratings.”
Frances Cheung, OCBC rates strategist
“Indonesian government bonds have been one of our top picks from a real yield differential perspective. The confirmation that there is no additional supply pressure and instead with lowered issuance shall further support the domestic bonds, rendering them resilient.”

Top Gainers & Losers – 20-Jul-21*

BondEvalue Gainer Losers 20 Jul-1
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