S&P and Nasdaq saw a sharp sell-off, ending 1.9% and 2.8% lower on Friday. Sectoral losses were led by IT, Consumer Discretionary and Communication Services down 2.5-3.0%. With the risk-off sentient, the US 10Y Treasury yield dropped 8bp to 1.95%, just a day after breaching the 2% mark for the first time since July 2019. European markets were lower with the DAX, CAC and FTSE down 0.4%, 1.3% and 0.2% each. Brazil’s Bovespa closed 0.2% higher. In the Middle East, UAE’s ADX was up 0.8% and Saudi TASI closed 0.5% higher on Sunday. Echoing the US sell-off on Friday, Asian markets have opened with a negative bias led by Nikkei down 2.62%, HSI down 1.13% and Shanghai down 0.44%. STI is marginally higher by 0.06%. US IG CDS spreads were 2.4bp wider and HY CDS spreads were 9.2bp wider. EU Main CDS spreads were 2.2bp wider and Crossover CDS spreads were 12.2bp wider. Asia ex-Japan CDS spreads were 3.7bp wider.
New Bonds Pipeline
- Beijing State-owned Capital Operation and Management hires for € 3Y bond
- Zhengzhou Airport Economy Zone Xinggang Investment Group hires for $ bond
- Dongtai Communication hires for $ 65mn 180-day bond
- Kalyan Jewellers India hires for $ 5Y bond
- Electricity Generating (EGCO) hires for $ 7Y or 10Y bond
- Petron hires for $ 7NC4 bond
Rating Changes
- Adient PLC Upgraded To ‘BB-‘ Following Deleveraging After Sale Of Stake In YFAS JV; Off CreditWatch; Outlook Positive
- Fitch Downgrades Turkey to ‘B+’; Outlook Negative
- Moody’s downgrades Sunac to B1/B2, changes outlook to negative from stable
- Adler Group And Adler Real Estate Downgraded To ‘B-‘ On Uncertain Business Prospects; On CreditWatch Negative
Term of the Day:
Call Option
A call option gives the buyer of the option the right but not the obligation to buy the underlying instrument at a particular price known as the strike price at expiration. Call options on bonds are in the hands of the issuer where the issuer has an option to redeem the bond before its maturity at a pre-defined price on a pre-defined date. As the name suggests, it is an option that lies with the issuer, who may choose to exercise it at their discretion.
Chinese property developer Zhenro Properties saw its perp fall a massive 58.5 points on Friday after rumors that the issuer will not be redeeming the bonds on the upcoming call date of March 5, as was previously suggested.
Talking Heads
On the Fed Rush to Catch Up on Inflation Raising U.S. Recession Risks
Former Fed Governor Lawrence Lindsey
“When you’re wrong in one direction and you’re painfully wrong, you’re going to have to end up with too much heavy lifting to go in the other direction”
Ex-Treasury Secretary Lawrence Summers
“The Fed has allowed itself to get far further behind the curve… The risk a recession will start in the next 30 months is certainly 50%.”
Sarah House, senior economist at Wells Fargo Securities
“The Fed is tightening into a slowdown… That does point to some risks around if they go too fast.”
On Goldman ups Fed hike forecast to 7 rate increases in 2022 after CPI data
Goldman Sachs said it expects seven 25 basis point interest rate rises from the U.S. Federal Reserve this year, up from its previous forecast of five
HSBC’s U.S. economist Ryan Wang
“This would amount to 150 bps in rate hikes this year, vs our previous forecast of three 25 bps rate hikes”
Deutsche economists
Raised their Fed call to a 50 bps hike in March plus five more 25 bps hikes in 2022, with a hike at all but the November meeting and totaling 175 bps in 2022
On ECB Overreaction on Prices Could Stymie Growth
ECB Governing Council member Olli Rehn
“If we reacted strongly to inflation in the short term, we would probably cause economic growth to stop. It’s better to look beyond short-term inflation and look at what inflation is in 2023, 2024… We will have time to react in the March meeting and in later meetings if it looks like the situation is markedly different than it now appears”
ECB’s Ignazio Visco
“The monetary policy stance remains expansionary, though the gradual normalization will continue at a pace consistent with the economic recovery and changes in the outlook for prices.”
On Rate Hikes Posing Bigger Threat Than Ever Before for Europe’s Debt
John Taylor, a portfolio manager at AllianceBernstein
“As of now, it’s the front-end that has suffered the most in the recent selloff… As the focus shifts to the impact of quantitative tightening, the market price will start to price in more of a term premium for longer term debt in the 10s and 30s… There isn’t a safe haven right now. So staying out of the market for the next month or two isn’t the worst thing”
Pierre Verle, a high-yield debt portfolio manager at Carmignac Gestion SA
“All the assets that have benefited from the extraordinary stimulus have higher duration now and are vulnerable”
Top Gainers & Losers – 14-Feb-22*
