Tuesday saw a strong risk-on move across markets as risks associated with banks abated. US Treasury yields moved higher across the curve, led by the 2Y up 16bp to back over 4% at 4.14%. The 10Y rose 10bp to 3.59%. All eyes are now on the Fed, which meets later today for its policy meeting where it is expected to raise rates by 25bp (85% probability) and offer new guidance over the path of interest rates. The peak Fed funds rate rose a further 7bp to 4.94%. US IG and HY CDS spreads eased ~8.4bp and 40.5bp respectively. Increased confidence that the demise of SVB and Credit Suisse and the rescue of First National Bank are credit-specific events prompted 3.6% gains for the S&P 500 Bank index. Most bank AT1 bonds too have recouped losses from Monday’s selloff. The S&P gained 1.3% while Nasdaq rose 1.58%. US Fed existing home sales jumped 14.5%, above estimates of 5% and last month’s -0.7%

European equity markets too rallied with most major indices up ~1.5%. European main CDS spreads eased 8.9bp while Crossover spreads tightened 28.6bp. Asia ex-Japan CDS spreads tightened by 5.9bp while Asian equity markets have opened with a strong positive bias this morning.

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New Bond Issues

New Bond Issues 22 Mar 23

New Bonds Pipeline

  • Shinhan Bank hires for $ senior bond
  • REC hires for $ Long 5Y Green bond
  • Qatar plans for $ bond

Rating Changes


Term of the Day: Discretionary coupons

Discretionary coupon is a clause commonly seen in perpetual bonds wherein the issuer has the right to defer coupons at its sole discretion. If deferred, the coupons can either be cumulative or non-cumulative. Cumulative, as the name suggests means that the unpaid coupons accumulate and must be paid at a later date, while non-cumulative means that the unpaid coupons are cancelled and not to be paid in the future.

Chinese property developer Sino-Ocean exercised this clause on its 6.876% Perps, which led to a 15 point selloff in the bonds.


Talking Heads

“(Asian banks) more reliant on AT1 may face increasing difficulty replenishing capital … Regulators may tighten capital and liquidity requirements, which may impact smaller banks more”
Derek Tang, economist at LH Meyer/Monetary Policy Analytics, Washington
“This tension is leading to existential angst … Have they gone too far, or not far enough? Both could be true at the same time.”
Jonathan Millar, senior economist at Barclays Plc, New York
“The difficult thing for the FOMC at this meeting will be the tension between bringing down inflation and financial stability risks”
Anna Wong, chief US economist
“There are no easy options. A pause could signal that the Fed is not confident in the resiliency of the banking system or the economy, or sees problems that aren’t yet visible to the market. On the other hand, a hike could add to bank stress and spook investors.”
Sonia Meskin, head of US Macro at BNY Mellon
“The difficulty there is not just what’s happening in the financial markets right now, but also estimating to what extent banks might curtail lending as a result”
Bill Dudley, senior adviser to Bloomberg Economics and former New York Fed President
“I expect that quantitative tightening will continue”
Nandalal Weerasinghe, Sri Lanka Central Bank Governor
“That will ease the government borrowing requirement from domestic markets … This will help bring down the interest rates and ease the pressure on the domestic interest rates further … It’s too early to discuss various scenarios … We are targeting to restore debt sustainability based on the IMF debt targets. That process will continue.”
Frank Oland, Danske Bank’s chief strategist
“We are seeing a tightening of credit conditions, both before all this with Silicon Valley Bank, but probably reinforced by what has now happened … When we have the kind of turmoil where many customers are withdrawing some deposits from the banks, we can expect credit conditions to be tightened further, meaning that lending will be cut back, and interest rates will perhaps also be raised”

Top Gainers & Losers – 22-March-23*

BondEvalue Gainer Losers 22 Mar 23

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