US equity markets ended sharply lower on Thursday with the S&P and Nasdaq down 3.2% and 4.1% Sectoral losses were led by Energy, which tanked 5.58% and Consumer Discretionary that fell 4.8%. US 10Y Treasury yields fell 13bp to 3.24% as risk-off took over the markets. European markets also followed the same streak by ending lower, with the DAX, CAC and FTSE down 3.3%, 2.4%, and 3.1% respectively. Brazil’s Bovespa was closed due to a holiday. In the Middle East, UAE’s ADX and Saudi TASI closed 0.82% and 1.3% lower respectively. Asian markets have opened mixed – Shanghai was flat, STI and Nikkei were down 0.43% and 1.74% respectively while HSI was up 0.78%. US IG CDS spreads widened 7.8bp and HY spreads were 37bp wider. EU Main CDS spreads were 6.8bp wider and Crossover spreads were 41bp wider. Asia ex-Japan IG CDS spreads widened 10.6bp.
The Bank of England (BoE) hikes its policy rate by 25bp for a fifth consecutive meeting to 1.25%, the highest rate in 13 years. It also signaled for a larger move if needed to control inflation. Moving further west, Argentina hiked its key Leliq rate by 300bps to 52% after its annual inflation reached 60%.
New Bond Issues
New Bonds Pipeline
- Korea Western Power hires for $ Green bond
- Kookmin Bank hires for € 3.5Y Sustainability bond
- Hanwha Energy mandates for $ green bond
- Busan Bank hires for $ Social bond
- Continuum Energy Aura hires for $ Green Bond
Rating Changes
- Moody’s upgrades Minimax’s CFR to Ba3; outlook stable
- Revlon Inc. Downgraded To ‘D’ From ‘CCC-‘ On Voluntary Petitions For Chapter 11 Bankruptcy
- McLaren Group Outlook Revised To Negative On Lowered Sales Forecasts And Pressured Liquidity; ‘CCC+’ Rating Affirmed
- Coinbase Outlook Revised To Negative On Earnings Pressure And Expected Lower Excess Cash Position; Ratings Affirmed
Term of the Day
Trigger Event
Triggers, or trigger events are an important feature of contingent convertible or CoCo bonds and define when the loss absorption mechanism is activated. Triggers can either be mechanical or discretionary. Mechanical triggers are numerically defined and most commonly refer to the bank’s capital ratio level. Discretionary triggers, also known as point of non-viability (PONV) triggers are based on supervisors’ judgement of the bank’s solvency position. On occurrence of a trigger event, a CoCo’s loss absorption mechanism kicks in, which may include a conversion to equity or a principal write-down, both of which boost the bank’s capital position.
Talking Heads
On Fed Running Out of Patience as It Homes In on Short-Term Inflation
Brett Ryan, a senior US economist at Deutsche Bank Securities in New York
“Core inflation is something we think about because it is a better predictor of future inflation. But headline inflation is what people experience…They don’t know what core is. Why would they? They have no reason to. So that’s, expectations are very much at risk due to high headline inflation.”
Jerome Powell, Fed Chairman
“[Index of Common Inflation Expectations, which incorporates not only the Michigan survey but others as well] has moved up after being pretty flat for a long time, so we’re watching that, and we’re thinking: This is something we need to take seriously,”
On Markets Saying BOE Needs to Hike to 3% This Year to Curb Inflation
Charles Hepworth, a director at GAM Investments
“Their commitment to act forcefully if necessary seems a little laughable…The necessity is already here. The Bank knows that growth is slowing, so they cannot act as forcefully as they may proclaim.”
Oliver Blackbourn a portfolio manager at Janus Henderson
“There has been a collective global policy mistake from central banks, but, despite reacting sooner than most, the UK looks to be in one of the worst positions…The UK looks more stagflatory than other major regions, with higher current inflation and weaker forecasts for economic growth.”
On the Fed Losing Money Next Year as It Raises Rates
William Dudley, former New York Fed President
“The interest rate the Fed will be paying out to banks for the reserves they hold at the central bank will be greater than the rate it earns on its huge holdings of Treasury and mortgage-backed securities….While the losses won’t impact the Fed’s ability to conduct monetary policy, they will dissuade policy makers from selling mortgage-backed securities because that would add to the red ink”
On Russia needing economic ‘perestroika’ to end reliance on energy exports
Elvira Nabiullina, head of the Central Bank of Russia
“We export at a discount, import at a premium. And in these conditions, of course, in my opinion, it is necessary to rethink the benefits of exports…A significant part of production should work for the domestic market…Everyone is worried that this structural perestroika, in conditions when we lose access to usual sources of technology, will really lead to degradation.”
On Lagarde Tells Ministers ECB Plans for Limit on Bond Spreads
Christine Lagarde European Central Bank President
“ECB’s new anti-crisis tool will kick in if the borrowing costs for weaker nation rise too far or too fast…intended to prevent irrational market movements from putting pressure on individual euro nations as ECB embarks on its first interest-rate hikes in more than a decade…may be triggered if bond spreads widen beyond certain thresholds or if market movements exceed a certain speed”
Top Gainers & Losers – 17-June-22*
