US equity markets closed sharply higher for a second day, with the S&P and Nasdaq up 2.2% and 3.8% post the FOMC meeting. Sectoral gains were led by IT and Consumer Discretionary, up over 3.3% each. US 10Y Treasury yields were up 1bp to 2.15% and currently are its highest levels since mid-2019 (chart below) after rising 42bp since March 4. European markets also rallied sharply – the DAX, CAC and FTSE were up 3.8%, 3.7% and 1.6% respectively. Brazil’s Bovespa ended 2% higher. In the Middle East, UAE’s ADX was up 1.6% and Saudi TASI was up 2%. Asian markets have opened on a strong footing – Shanghai, HSI, STI and Nikkei were up 2.6%, 5.6%, 0.9% and 2.9% respectively. US IG CDS spreads tightened 5.6bp and HY spreads were 27bp tighter. EU Main CDS spreads were 5.6bp tighter and Crossover CDS spreads were 31bp tighter. Asia ex-Japan CDS spreads were 12.5bp tighter.
The US Federal Reserve hiked its policy rate by 25bp to 0.25-0.50bp, as expected. Hong Kong too raised its benchmark rates by 25bp to 0.75%, stating that it wanted to maintain stability in the financial system amid heightened market volatility.
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New Bond Issues
JPMorgan raised €2.5bn via an 8NC7 bond at a yield of 1.963%, 20bp inside initial guidance of MS+130bp area. The bonds are rated A-/AA- (S&P/Fitch), and received orders over €8bn, 3.2x issue size. Coupons are fixed until the optional redemption date of March 23, 2029, and if not redeemed it refixes at 3m EURIBOR+110bp quarterly.
New Bonds Pipeline
- Hyundai Heavy Industries hires for $ green bond
- The Republic of the Philippines hires for $ bond
- Aluminium Corporation of China hires for $ bond
- Petron hires for $ 7NC4 bond
- Electricity Generating (EGCO) hires for $ 7Y or 10Y bond
Rating Changes
- Fitch Downgrades Redco to ‘C’ on Distressed Debt Exchange
- Unifin Downgraded To ‘B+’ On Narrower Funding Due To Adverse Market Conditions; Ratings Placed On CreditWatch Negative
- Bed Bath & Beyond Inc. Outlook Revised To Negative On Inventory Challenges And Inflationary Pressures; Rating Affirmed
Term of the Day
Dim Sum Bonds
These are bonds denominated in offshore Renminbi (CNH) and issued outside China (mostly in Hong Kong). The first dim sum bond was issued in 2007 by China Development Bank – a 2Y bond in Hong Kong, with a 3% coupon and size of RMB 5bn ($750mn). These instruments get their name from dim sum, a popular delicacy in Hong Kong. Dim sum bonds are typically issued by issuers that have a need for Renminbi but do not want to go through regulatory approvals as dim sum issuance are not subject to regulatory approval from mainland China or Hong Kong, provided that they are sold to professional investors.
China Education Group Holdings has priced RMB 500m ($79m) three-year Dim Sum bonds at 99.302 to yield 4.25%.
Talking Heads
On Bond Traders Stunned by a Hawkish Fed Are Sounding Growth Alarms
Andrzej Skiba, head of U.S. fixed income at RBC Global Asset Management
“The market is pricing in a higher recession risk and you can see that with the inversion between five and 10-year yields. The Fed is sending a strong commitment to fighting inflation.”
George Goncalves, head of U.S. macro strategy at MUFG
“It is as if Powell wants to sounds upbeat but at the same time tough on inflation without signaling that this will ultimately end with a policy error and a risk of a recession on the back-end”
On Asian bonds receive foreign inflows in Feb despite soaring geopolitical concerns
Duncan Tan, a strategist at DBS Bank
“Considering that the Russia-Ukraine conflict occurred in the second half of February, whole-month bond flow figures may not reflect the full impact on foreign demand for Asia bonds. In the near term, with geopolitical risks and Fed lift-off expected to weigh on Asia bonds, foreign bond inflows are likely to be weak.”
Khoon Goh, head of Asia research at ANZ
“Geopolitical tensions, tighter U.S. liquidity and high energy prices will all weigh on portfolio flows into Asia”
On Hidden Debt Fears Unravel Lucrative Lifeline for China Builders
Liu Junjie, a fixed-income fund manager at Zheshang Fund Management Co.
“We are avoiding developers with a high proportion of urban redevelopment projects, at least for now. They usually come with liquidity risks and uncertain cost controls”
On Brazil’s Bolsonaro hints at potential replacement of Petrobras CEO
“So it doesn’t mean that they will be replaced or that they won’t be replaced…everyone in the government can be replaced if they are not doing their job at a satisfactory level”
Top Gainers & Losers – 17-Mar-22*
