US equity markets jumped with the S&P and Nasdaq up 3% and 3.2% respectively. All sectors were in the green, led by Energy, up 4%, Communication Services and IT, up over 3.5% each. The move comes after a pick-up late in the day post the Fed meeting where they hiked by 50bp as expected, but cooled down fears of any 75bp hike expectations (scroll below for details). US 10Y Treasury yields were near flat at 2.94%. European markets were lower – the DAX, CAC and FTSE were down 0.5%, 1.2% and 0.9% respectively. Brazil’s Bovespa closed 1.7% higher. In the Middle East, UAE’s ADX and Saudi TASI were closed. Asian markets have opened broadly positive – Shanghai and HSI were up 1.1% and 0.7% while STI was down 0.1% and Nikkei was closed. US IG and HY CDS spreads tightened 4.7bp and 13.7bp respectively. EU Main CDS spreads were wider and Crossover spreads were 13.8bp wider. Asia ex-Japan CDS spreads were 4.8bp wider.
In a surprise move, the Indian central bank, RBI, hiked its repo rate by 40bp and its cash reserve ratio (CRR) by 50bp in an unscheduled meeting. The Hong Kong central bank also hiked its policy rate by 50bp to 1.25%, hours after the US Federal Reserve hiked its rate.
New Bond Issues
UBS raised $3bn via a three-trancher. It raised:
- $1.2bn via a 4NC3 bond at a yield of 4.488%, 25bp inside initial guidance of T+180bp area
- $600mn via a 4NC3 FRN at SOFR+158bp vs initial guidance of SOFR equivalent
- $1.2bn via a 6NC5 bond at a yield of 4.751%, 25bp inside initial guidance of T+200bp area
The bonds are rated A-/A+ (S&P/Fitch).
New Bonds Pipeline
- ENN Energy hires for $ Green bond
- Korea Expressway hires for $ bond
- Busan Bank hires for $ Social bond
- Kookmin Card hires for $ Sustainability bond
- Continuum Energy Aura hires for $ Green Bond
- Jubilant Pharma hires for $ bond
- Sael Limited hires for $ 7Y Green bond
Rating Changes
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Fitch Upgrades Aetna’s Ratings; Outlook Stable
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NCR Corp. Downgraded To ‘B+’ From ‘BB-’ On Margin Pressures, Slower-Than-Expected Deleveraging; Outlook Stable
FOMC Hikes by 50bp; Balance Sheet Roll-off to Begin in June
The Federal Reserve hiked its policy rate by 50bp, as expected by market participants, bringing the fed funds target range to 0.75%-1%. This was its largest single rate hike in over two decades. The move comes on the back of inflation hitting 40Y highs, at 8.5% YoY in March. Current market pricing expects the fed funds range between 2.75%-3% by year end. Regarding the quantum of further rate hikes, Fed Chairman Jerome Powell said, “Seventy-five basis points is not something the committee is actively considering” and that 50bp hikes “should be on the table at the next couple of meetings”. In addition, the Fed also decided to begin reducing its holdings of its balance sheet Treasury securities and agency debt and agency mortgage-backed securities (MBS) on June 1. Starting in June, $30bn of Treasuries and $17.5bn of MBS roll-off. After three months, the cap will increase to $60bn and $35bn for Treasuries and MBS respectively.
For the statement, click here
Sri Lanka Plans to Revamp Budget; In Talks with the World Bank for $300-700mn Support
Sri Lanka’s finance minister Ali Sabry said that the nation plans to replace its current budget. He said that the budget was “unrealistic” and that they would “bring in a new budget that will seek to address core issues of low public revenue”. Sabry said he wanted to increase tax revenue as a share of GDP to 14% within the next two years, to ensure the economy remains on a “sustainable footing”. Tax revenues are currently at 8.7% of GDP. He added that they are in talks with the World Bank to extend support by $300-700mn.
Since the crisis in Sri Lanka is evolving, investors may find it difficult to stay updated. To make things easier, we have put together an interactive dashboard focused on the latest news on Sri Lanka’s dollar bonds and also updates on Sri Lanka’s credit ratings, foreign exchange reserves, CDS spreads, bond maturity wall and more.
HSBC, Ping An to Discuss Strategic Breakup Proposal of Asia Business
HSBC and Ping An executives plan to meet in mid-May to discuss the latter’s proposal that HSBC should explore strategic options such as a spin-off of its Asian business, as per a source. Business Times notes that Ping An is the biggest shareholder in HSBC with an 8.23% stake as of February 2022. The Chinese insurer has called for the bank to boost returns via a strategic breakup of its businesses. It said that it was in support of all reform proposals to increase HSBC’s long-term value. While HSBC did not comment on Ping An’s proposal, it defended its existing structure during its earnings release. BT notes that some investors are skeptical of a breakup as recent years have seen UK, Europe and US businesses’ earnings disappoint, coupled with the notion that there was no guarantee of increasing returns with a breakup. Some analysts note that an Asian demerger could lead to higher costs of capital in the long-term, wiping out any quick gains emerging from new listings.
HSBC’s 6.375% Perp was down 0.2 points to 100.31, yielding 6.25%.
For the full story, click here
Country Garden Buys Back $10mn in Bonds Again
Country Garden (COGARD) bought back another $10mn of its 4.75% bonds due July 2022 and 4.75% bonds due January 2023. From March 14 to May 2, the developer had bought back $9mn of the 2022s and $1mn of the 2023s. Overall in 2022, Country Garden has now bought back ~$56mn of the above 2022s, 2023s and its 7.25% 2026s. Research firm CreditSights said in late March that Country Garden had already made arrangements for the repayment of the its 4.75% 2022s, noting that its average borrowing cost was lowered to 5.2% in 2021 from 5.56% in 2020.
COGARD’s dollar bonds were higher with its 5.625% 2026s up 1.5 points to 69.6 cents on the dollar
SBI Plans to Raise $2bn via Offshore Bonds
India’s state-owned lender State Bank Of India (SBI) plans to raise $2bn by issuing long-term offshore bonds in the current financial year 2022-23. The bond issuance could be under a single deal or multiple tranches under, through a public offer or private placement of senior unsecured notes in USD or any other convertible currency. The executive committee of the Central Board of the bank is scheduled to have a meeting on May 10, 2022 to consider fundraising. SBI is the largest lender in India having advances of INR 26.64trn ($350bn), total deposits of INR 38.47trn ($510bn), and a net interest margin (NIM) of 3.11% as of December 2021. In January 2022, the bank raised $300mn via a 5Y Formosa bond at a yield of 2.496%. In August last year, its Indian private peer HDFC Bank raised $1bn via a PerpNC5 AT1, its debut dollar issuance, at a yield of 3.7%. In September 2021, another Indian lender, Axis Bank issued $600mn via sustainable perpetual bonds at a yield of 4.1%.
SBI’s existing dollar bonds were trading higher with its 4.875% 2024s up over 0.36 points to 102.18 yielding 3.70%.
For the full story, click here
Term of the Day
Balance Sheet Run-off
A balance sheet run-off in central banking parlance refers to a process of reducing the size of the central bank’s balance sheet in a path towards tightening monetary policy. Here, the central bank portfolio assets such as Treasuries, MBS etc. are allowed to mature without reinvesting coupons and/or redemption amounts, thereby allowing these securities to mature over time and stably reducing the balance sheet size. A runoff can also include outright sales of these assets, indicating a rapid reduction in the balance sheet.
Talking Heads
On the Fed Not Calling for a 75bp Hike
Jerome Powell, Federal Reserve Chairman
“A 75 basis point increase is not something that the committee is actively considering
Max Gokhman, chief investment officer for AlphaTrAI
“Taking out a left tail risk is the best bone a market can get right now. Hence the S&P is jumping like a pleased puppy.”
Rosin, Oppenheimer & Co.’s head of institutional equity derivatives
“They jawboned the market down ahead and got what they wanted. The whole Street, especially retail, has been de-leveraging amid margin calls and rough performance. The Fed is not looking to ‘crush’ the market today on the event. They’re basically saying 50 basis points at each meeting, not more or less. It’s one BIG relief.”
Chiavarone, senior portfolio manager at Federated Hermes
“A rally in Treasuries here and a rally in equities there may just be more about expectations that got ahead of themselves rather than any dovish surprise”
On Bond bull market ‘has come to an end’ – Guggenheim’s Scott Minerd
“I have to throw in the towel. The long bull market run in bonds has come to an end…. Rather than following a sound policy . . . we’ve decided we’re going to raise rates and shrink the balance sheet… My concern is as we roll over and we see inflation starting to slow, the Fed will . . . not recognise where the neutral rate is”
On Pinebridge backing Singapore dollar bonds
Omar Slim, senior portfolio manager, Asia fixed income, Pinebridge
“That is causing the market to be very well anchored, as there is a growing money pool that is chasing a market that is not growing very quickly…Despite global fixed income markets not performing well at the beginning of the year, the Singaporean market has outperformed its peers by having a relatively low volatility… With the reopening of Singapore, Reits bonds should perform well because they benefit from government fiscal support.”
