US equity markets continued its climb on Monday with the S&P and Nasdaq up 0.4% and 0.6% respectively. Sectoral gains were led by Consumer Staples up 1% and Utilities up 0.8%; Energy was down 2%. US 10Y Treasury yields eased 6bp to 2.78%. European markets were also higher – DAX, CAC and FTSE were up 0.2%, 0.3% and 0.1% respectively. Brazil’s Bovespa ticked 0.2% higher. In the Middle East, UAE’s ADX was down 0.5% while Saudi TASI rose 0.2%. Asian markets have opened mixed – Shanghai and HSI were up 0.2% and 0.1% respectively while STI was down 0.3% and Nikkei was flat. US IG CDS spreads widened 0.4bp and US HY spreads were wider by 2.6bp. EU Main CDS spreads were 0.2bp wider and Crossover spreads were widened by 1.4bp. Asia ex-Japan IG CDS spreads were tightened 3.3bp.

China’s central bank, the PBoC unexpectedly cut key interest rates for the second time in 2022 and withdrew some cash from the banking system to support its slowing pandemic-hit economy. The PBoC cut rates by 10bp to 2.75% on its RMB 400bn ($59.3bn) one-year medium term lending facility (MLF) to financial institutions. This came close on the heels of soft macro data from the mainland – China retail sales rose 2.7% YoY in July, way below estimates of 5% and lower vs. June’s 3.1%. Industrial production was up 3.8% YoY, slower than expectations of 4.6% (3.9% in June). YTD, fixed asset investment was up 5.7% YoY, missing expectations of 6.2%. Meanwhile, in Nigeria inflation surged to 19.6% in July against estimates of 19.4% and 18.6% in June. Inflation trended to a 17-year high on high commodity prices, transport costs and supply shortages.

Webinar 23rd aug

New Bond Issues

New Bond Issues 16 Aug 22

Royal Caribbean raised $1.25bn via a 5NC2 bond at a yield of 11.625%, 25bp inside the initial guidance of 11.875% area. The senior unsecured bonds have expected ratings of B3/B. Proceeds will be used to repay principal payments on its 5.25% 2022s and/or its debt maturing in 2023, and to repay borrowings under its revolving credit facilities. The new bonds are priced at a new issue premium of 49.5bp vs. its existing non-callable 7.5% 2027s that currently yield 11.13%.

Rabobank raised $2.25bn via a two-tranche deal. It raised

  • $1bn via a 2Y bond at a yield of 3.899%, 20bp inside the initial guidance of T+90bp area. The senior preferred bonds have expected ratings of Aa2/A+/AA-. The new bonds are priced 14.1bp tighter to its existing 2.625% 2024s that yield 4.04%.
  • $1.25bn via a 6NC5 bond at a yield of 4.655%, 25bp inside the initial guidance of T+200bp area. The senior non-preferred bonds have expected ratings of A3/A-/A+. The new bonds are priced at a new issue premium of 5.5bp vs. its existing 3.649% 2028s that yield 4.6%.
Proceeds will be used for general corporate purposes.

New Bonds Pipeline

  • Energy Development Oman hires for $ sukuk
  • Tianjin Binhai New Area Construction & Investment hires for $ bond
  • NH Investment hires for $ 3Y and/or 5Y Green bond


Rating Changes

Term of the Day

Credit Default Swap (CDS)

A Credit Default Swap (CDS) is a financial contract between two counterparties that allows an investor to “swap” or offset the credit risk with another investor. CDS acts like an insurance policy wherein the buyer makes regular payments to the seller to protect itself from an issuer default. In the event of a default, the buyer receives a payout, typically the face value of the bond or loan, from the seller of the CDS as per the agreement. CDS spreads are a commonly used metric to track the market-priced creditworthiness of an issuer. A widening (increase) in CDS spreads indicates a deterioration in creditworthiness and vice-versa. Ukraine’s bondholders are questioning the Credit Derivatives Determinations Committee (CDDC) on whether the war-torn nation’s 2 year debt suspension qualifies as a default. If it does, the bondholders can lay claim to the CDS payments on Ukraine’s debt, which amounts to approximately $221mn. 

Talking Heads

Chinese developers in ‘survival mode’ slashes property investment

Chinese developers in “survival mode” sharply cut property investment in July while new construction starts suffered their biggest fall in nearly a decade, suggesting the liquidity-challenged sector is not about to turn the corner anytime soon. China’s property market, accounting for about a quarter of the economy, has been trapped in a capital crisis since the summer of 2020, leading some cash-strapped developers to default on their debts and struggle to complete projects. Wary buyer sentiment has also chilled new investment by developers. Property investment in July fell 12.3 per cent year-on-year, the biggest decline in 2022, while new construction starts by floor area slumped 45.4 per cent, the largest drop since January-February 2013, according to Reuters calculations based on data from the National Bureau of Statistics (NBS) on Monday.

BofA Says Quantitative Tightening Would Shave 7% Off S&P 500

When looking at the historical relationship between the Fed’s bond purchases and S&P 500 returns from 2010 to 2019, the bank concluded in a research note on Monday that quantitative tightening through 2023 would translate into a 7% drop in the benchmark gauge from current levels. According to BofA, quantitative easing has explained more than 50% of the movement in the market. Quantitative tightening has undoubtedly taken a back seat to more pressing issues such as inflation and recession angst, Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said. Yet, the tapering of the Fed’s asset holdings may come to the forefront as growth continues to slow.

‘Dr. Doom’ Roubini Sees Either US Hard Landing or Uncontrolled Inflation

Economist Nouriel Roubini

“The fed funds rate should be going well above 4% — 4.5%-5% in my view — to really push inflation towards 2%,” the chairman and chief executive officer of Roubini Macro Associates said in an interview. “If that doesn’t happen, inflation expectations are going to get unhinged,” said Roubini, whose prescience on the housing bubble that led to the US financial crisis of more than a decade ago. There are two options for the US economy, given the Federal Reserve’s most-aggressive tightening campaign in decades: an economic hard landing or inflation at a persistently elevated level.

Asian bonds see first monthly foreign inflow in five months

Overseas investors were net buyers of bonds from emerging Asian markets, excluding China, in July on hopes the United States might slow the pace of interest rate hikes as its economy feels the heat, while concerns over higher inflation levels subsided. Foreigners moved a combined net total of $2.39 billion into Indonesian, Thai, Malaysian, South Korean and Indian bonds last month, marking their first month as net buyers since February, regulatory and bond market associations’ data showed.

Top Gainers & Losers – 16-August-22*

BondEvalue Gainer Losers 16 Aug 22

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