US equity markets ended higher on Thursday with the S&P and Nasdaq up 0.2% each. Sectoral gains were led by Energy, up 2.5% and IT gaining 0.5%. US 10Y Treasury yields were 3bp higher at 2.90%. European markets were in the green – DAX, CAC and FTSE rose 0.5%, 0.5% and 0.4% respectively. Brazil’s Bovespa was flat. In the Middle East, UAE’s ADX and Saudi TASI were down 1.5% and 0.2% respectively. Asian markets have opened mixed – Shanghai was flat, HSI and Nikkei rose 0.5% and 0.1% respectively while STI was down 0.7%. US IG CDS spreads tightened 0.9bp and US HY spreads were tighter by 2.9bp. EU Main CDS spreads were 2.2bp tighter and Crossover spreads tightened by 9.8bp. Asia ex-Japan IG CDS spreads widened 1.4bp.
Eurozone inflation rose 8.9% in July, in-line with estimates and 8.6% in June. Inflation hit its highest since 1999 due to higher energy prices, surge in food, tobacco, and alcohol prices. Turkey’s central bank cut its benchmark interest rate by 100bp to 13% (scroll below for further details). Ghana’s central bank lifted its benchmark rate by the most in last 20-years, by 300bp to 22%. Ghana’s currency has lost 36% of its value YTD against the dollar, and to shore-up forex reserves, the central bank has been forced to buy all foreign exchange from mining and international companies generated from export proceeds.
New Bond Issues
Credit Suisse raised $2.5bn via a two-tranche deal. It raised $1.25bn via a 2Y bond at a yield of 4.762%, 15bp inside initial guidance of T+170bp area. It also raised $1.25bn via a 5Y bond at a yield of 5.07%, 15bp inside initial guidance of T+220bp area. The senior unsecured bonds have expected ratings of A2/A/BBB+. Proceeds will be used for general corporate purposes. The new 2Y bond priced at a new issue premium of 11.2bp over its existing 3.7% 2025s that yield 4.65%.
Credit Agricole raised €1bn via a 7Y bond at a yield of 2.554%, 18bp inside initial guidance of MS+95bp area. The senior preferred bonds have expected ratings of Aa3/A+/AA-, and received orders over €1.7bn, 1.7x issue size.
Santander raised €750mn via a 6NC5 bond at a yield of 3.53%, 15bp inside initial guidance of MS+200bp area. The bonds have expected ratings of Baa1/BBB/A, and received orders over €1.3bn, 1.7x issue size. If the bonds are not called by the optional redemption date of 25 August 2027, the coupon rate will reset to the 1Y Mid-Swaps (Term of the Day, explained below) plus a credit spread of 185bp.
New Bonds Pipeline
- Tianjin Binhai New Area Construction & Investment hires for $ bond
- NH Investment hires for $ 3Y and/or 5Y Green bond
- DCP Midstream L.P. Upgraded To ‘BBB+’ From ‘BBB-‘ On Increased Strategic Importance To Phillips 66, Outlook Stable
- Fitch Downgrades Sino-Ocean to ‘BB+’; Ratings on Negative Watch
- Jubilant Pharma Downgraded To ‘BB-‘ On Operating Underperformance; Ratings Withdrawn At The Company’s Request
- Oil Producer Tullow Outlook Revised To Negative From Positive Following Downgrade Of Ghana; ‘B-‘ Rating Affirmed
- Moody’s changes DCP Midstream’s outlook to positive
Term of the Day
Mid-Swaps are essentially the mid-rate or the average of the bid-ask rates on a swap corresponding to the maturity of the bond. Whilst bonds are generally priced as a spread over Treasuries, some issuers price them over the Mid-Swaps rate. Many euro denominated bonds are priced as a spread over the Mid-Swaps rate. The ‘swap rate’ is essentially the fixed-rate that the receiver gets in exchange for paying the floating rate in a Swap contract with the Mid-Swaps being the average of the bid-ask swap rates.
St. Louis’s James Bullard
“I don’t really see why you want to drag out interest rate increases into next year”
Kansas City’s Esther George
“I think the case for continuing to raise rates remains strong. The question of how fast that has to happen… We have done a lot, and I think we have to be very mindful that our policy decisions often operate on a lag.”
Minneapolis Fed chief Neel Kashkari
“We have an inflation problem right now”
“Given our core view that here will be no global recession and that inflation will ease, the variable that matters the most is positioning. And positioning is still very low. While the perception is that bears were vindicated this year, one should keep in mind that price targets are for year end, and not intra-year lows.”
“We need to get the rate up, up to neutral at least, which is around 3%, but likely to restrictive territory — a little bit above 3% this year and a little bit more above 3% next year. I really think of the raise-and-hold strategy as one that has historically paid off for us.”
Principal Global Investors’ Seema Shah
“There is a split between the equity market and the bond market… The bond market is very negative about the growth outlook whereas the equity market seems to be very optimistic about pretty much everything. That is where you’re getting the easing of financial conditions in the past month.”