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.
New Bond Issues
New Bonds Pipeline
- Shinhan Bank hires for $ senior bond
- REC hires for $ Long 5Y Green bond
- Qatar plans for $ bond
Rating Changes
- WeWork Cos. LLC Downgraded to ‘CC’ On Announced Exchange Offer Transaction; Outlook Negative
- Fitch Downgrades GOL to ‘RD’; Upgrades to ‘CCC+’
- Turkish Domestic Appliances Producer Arcelik A.S. Downgraded To ‘BB’ On Higher Cost Of Debt; Outlook Negative
- Fitch Downgrades DTEK Energy to ‘C’ on Tender Offer
- Brazilian Integrated Steelmaker CSN Outlook Revised To Stable From Positive On Higher Leverage; ‘BB’ Ratings Affirmed
- Fitch Places UBS Group on Rating Watch Negative on Announced Acquisition of Credit Suisse
- Fitch Places Credit Suisse Group and Subsidiaries on Rating Watch Evolving on Merger
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.
