US Treasury yields were firmer after two consecutive days of declines – the 10Y yield was up 5bp. The peak Fed Funds Rate was up 2bp with CME probabilities indicating an unchanged policy rate for the June meeting. US jobless claims for the prior week increased by 13k to 242k, slightly above estimates of 240k.
Concerns over the US financial system continue to weigh on markets – PacWest Bancorp shares plunged over 50% after confirming it was considering options including a possible sale, while Western Alliance Bancorp closed over 38% in the red. Besides, Canada’s TD Group called off its $13.4bn acquisition of First Horizon Corp, triggering a 33% slump decline in the latter’s shares. The S&P 500 bank index dropped 2.8% and the broader US equity indices fell again – the S&P and Nasdaq were down 0.5-0.7%. US IG and HY CDS spreads were wider by 1.7bp and 9.8bp respectively.
The ECB hiked its policy rate by 25bp as expected and noted, “the inflation outlook continues to be too high for too long.” They said that while headline inflation has declined over recent months, underlying price pressures continue to remain strong. European equity markets ended lower too. European main CDS spreads were wider by 3.8bp and Crossover spreads widened 18.3bp. Asia ex-Japan CDS spreads widened by 4.2bp. Asian equity markets have opened in the red today.
New Bond Issues
New Bonds Pipeline
- Korea Credit Guarantee Fund hires for $ 3Y Social bond
- Melbourne Airport hires for € 10Y bond
Rating Changes
- China Great Wall Asset Management, Subsidiary Outlook Revised To Negative On Delayed Results; ‘BBB/A-2’ Ratings Affirmed
Term of the Day
Deposit Facility Rate
The deposit facility rate (DFR) is one among the three key interest rates set by the ECB. This rate defines the interest rate that banks receive on the surplus liquidity that they deposit overnight in an account with a national central bank. The Eurosystem has several national central banks with ECB being the prime central bank that works with the other national central banks of all EU countries. There are two other key interest rates that the ECB governs – the rate on main refinancing operations (MROs) and the rate on the marginal lending facility (MLF). The MRO rate refers to the cost of borrowing for banks from the central bank for a period of one week. The MLF rate refers to the overnight rate that banks can borrow at from the central bank.
Following yesterday’s rate hike by 25bp, the current DFR is at 3.25%, with the MRO rate at 3.75% and MLF rate at 4.00%.
Talking Heads
On Return of Regional Bank Angst Battering Corporate Debt Markets
Bloomberg Intelligence bank analyst Arnold Kakuda
“It still feels like we’re in March, unfortunately. ven though these banks have talked about deposits stabilizing, it seems like the market is disregarding that”
Nicholas Elfner, co-head of research at Breckinridge Capital
“Market sentiment is poor for US regional bank bonds in markets today, capping off a tough week. At this point, it is vital that banking regulators address financial instability and waning confidence.”
On Europeans draining billions from banks and fed up with shrinking savings
Nicola Marinelli, assistant professor of finance at Regent’s University
“Traditional banks need to decide whether to maximise their return by keeping rates on deposits as low as possible, or to prioritise their liquidity and stability by increasing rates and retaining customers’ funds”
Top Gainers & Losers – 05-May-23*
