US Treasury yields have moved higher again after with the 10Y and 30Y yields up 7-8bp. The peak Fed Funds Rate rose by 5bp to 4.94% for the FOMC’s March 2023 meeting. In the credit markets, US IG CDS spreads widened 2.9bp and HY CDS spreads saw a 13bp widening. US equity markets wiped out Thursday’s gains with the S&P and Nasdaq down 2.4% and 3.1% respectively. Wall Street banking majors like JPMorgan, Citi and Morgan Stanley reported their Q3 results, with the commencement of the earnings season – the three banking majors saw net profits fall 17-29%
European equity markets ended slightly higher too and CDS spreads tightened – EU Main and Crossover CDS spreads widened by 0.9bp and 7.5bp respectively. Asian equity markets have opened broadly lower today with Asia ex-Japan CDS spreads bp wider at 0.5bp.
New Bond Issues
Morgan Stanley raised $6.5bn via a three-tranche deal. It raised
- $1.25bn via a 4NC3 bond at a yield of 6.138%, 10bp inside initial guidance of T+175bp area. The new bonds are priced at a new issue premium of 31.8bp vs. its existing 3.875% 2026s that yield 5.82%.
- $2.25bn via a 6NC5 bond at a yield of 6.296%, 10bp inside initial guidance of T+215bp area. The new bonds are priced at a new issue premium of 14.6bp vs. its existing 4.21% 2028s that yield 6.15%.
- $3bn via a 11NC10 bond at a yield of 6.342%, 10bp inside initial guidance of T+245bp area. The new bonds are priced at a new issue premium of 15.2bp vs. its existing 7.25% 2032s that yield 6.19%.
The bonds have expected ratings of A1/A-/A. Proceeds will be used for general corporate purposes.
New Bonds Pipeline
- Aozora Bank hires for $ 3Y Green bond
- Kroger Co. Outlook Revised To Negative, ‘BBB’ Rating Affirmed On Announced Acquisition Of Albertsons Cos. Inc.
Term of the Day
CASA is a banking term that refers to ‘Current Account Savings Account’ deposits and the CASA ratio is the ratio of these deposits as a percentage of total deposits. CASA deposits by nature, are low-cost deposits for banks as they pay lower interest rates on these as compared to term deposits. Thus, a higher CASA ratio is beneficial for a bank as its interest expenses are lower and leads its way to better earnings.
On Bruised Bond Bulls See Rate-Hike Pain Sowing Seeds of 2023 Rally
Gene Tannuzzo, global head of fixed income at Columbia Threadneedle Investments
“Over a 12 month horizon, the way we look at markets, I think there is a lot of scope for rates to move lower, reflecting a slowly changing tune from both the inflation data and the Fed”
Monica Erickson, head of investment-grade corporates at DoubleLine Capital
“The Fed is committed to raising rates until they see inflation coming down. And the curve, with 2s10s so inverted, is telling you that the Fed is going to push us, if not into a major slowdown, then a full-blown recession. With that you could get lower rates on the long end — and still higher rates on the short end.”
Barclays economist Jonathan Millar
“With the FOMC’s backward-looking reaction function intensifying overtightening risks, we now expect the Federal Open Market Committee to cut the funds rate by 75 basis points in the final three meetings of 2023”
On Yellen Saying Inflation Top US Priority, Backs Market-Set Dollar
“I had the opportunity to speak with counterparts from a broad range of countries about the way global macroeconomic forces are affecting their countries. This week has left us better informed and better coordinated. There are spillovers from tightening monetary policy in advanced countries dealing with inflation to developing economies. That’s one of the reasons we’re so focused on providing relief.
On boost to dollar from interest rate hikes may ease – Fed’s Bullard
Fed policy “has produced a stronger currency”… That may ease once the Fed gets rates to a place “where the committee thinks we’re putting meaningful downward pressure on inflation”… “you might see other movements in the dollar”
On Mini-budget will likely mean higher interest rates – Bank of England governor, Andrew Bailey
“We will not hesitate to raise interest rates to meet the inflation target…. And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August… he price cap will add to demand relative to what it would have been without the cap, and thus what we thought in August. It will therefore add to inflationary pressures towards the later part of the two-year period on which we focus.”