The S&P and Nasdaq recovered yesterday after consecutive days of sharp losses, up 0.6% and 1.3% Sectoral gains were led by Communication Services and IT, up 1.4-1.6%. US 10Y Treasury yields eased 2bp to 2.82%. European markets closed lower with the DAX, CAC, FTSE down 1.5% 2% and 1.9%. Brazil’s Bovespa closed 0.4% lower. In the Middle East, UAE’s ADX was down 0.9% while Saudi TASI was up 0.6%. Asian markets have opened sharply lower – Shanghai, HSI and Nikkei were down 2.4%, 2.6% and 1.7% while STI was down 0.2%. US IG and HY CDS spreads tightened 2.5bp and 11.3bp respectively. EU Main CDS spreads were 2.7bp wider and Crossover spreads were 11.1bp wider. Asia ex-Japan CDS spreads were 7.7bp wider.
The PBOC has cut the amount of money that banks need to have in reserve for their foreign currency holdings. Known as the forex RRR, the PBOC cut the rate by 100bp to 8% after the yuan dropped to its lowest level against the dollar in 17 months. The move is expected to increase capabilities of forex fund use and manage liquidity by banks, with an increased supply of dollars.
New Bond Issues
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Keppel Infrastructure Trust S$ 5Y at 4.35% area
- Singapore Technologies Engineering $ 5Y/10Y at T+100/135bp area
- Orient Securities € 3Y at MS+95bp area
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OUE Commercial REIT raised S$100mn via a 5Y bond at a yield of 4.2%, 30bp inside initial guidance of 4.5% area. The bonds are unrated and issued by OUE CT Treasury and guaranteed by the REIT’s trustee, DBS Trustee. The bonds recevived orders around S$250mn, 2.5x issue size. Fund managers and corporates bought 17% and private banks took 83%. Singapore accounted for 96% and others 4%. The bond’s coupon will step down by 25bp if OUE Commercial REIT and its notes obtain an investment grade rating within 18 months of the bond’s issue date. Proceeds will be used to refinance debt, fund general corporate needs, including investments and capital expenditure, and for working capital. Private banks will get a 25-cent concession. The bonds were priced 26bp wider to its existing 3.5% 2026s that yield 3.94% in secondary markets.
Straits Trading raised S$170mn via a 4Y bond at a yield of 4.1% unchanged from price guidance. The issue size was above a minimum S$75mn indicated by company. Private banks will get a 25-cent concession. Controlling shareholders and related persons and/or directors will subscribe to around 18% of the bond. Proceeds will be used for general corporate purposes, including debt refinancing, capital expenditure and working capital needs.
New Bonds Pipeline
- Korea East-West Power hires for $ 5Y Green bond
- Busan Bank hires for $ Social bond
- Kookmin Card hires for $ Sustainability bond
- Continuum Energy Aura hires for $ Green Bond
- Jubilant Pharma hires for $ bond
- Sael Limited hires for $ 7Y Green bond
Rating Changes
- Moody’s downgrades KWG to Caa1; outlook negative
- Sri Lanka Foreign Currency Rating Lowered to ‘SD’ On Missed Sovereign Bond Interest Payments
- Fitch Revises SABIC’s Outlook to Positive; Affirms IDRs at ‘A’
- Fitch Revises Saudi Aramco’s Outlook to Positive; Affirms IDR at ‘A’
Term of the Day
Amortizing Bonds
Amortizing bonds are debt instruments that pay both coupons and principal through the life of the bond. Unlike straight bonds that pay back the principal as a bullet payment at maturity, amortizing bonds pay back principal at regular intervals based on a predefined schedule prior to the maturity date. Since the principal is retired slowly over the life of the bond, the weighted average life (WAL) is keenly looked out for. Amortizing structures are more common in loans and mortgages.
Talking Heads
On IMF warns of ‘stagflationary’ risks in Asia, cuts growth outlook
Anne-Marie Gulde-Wolf, acting director of the IMF’s APAC Department
“Therefore, the region faces a stagflationary outlook, with growth being lower than previously expected, and inflation being higher… Monetary tightening will be needed in most countries, with the speed of tightening depending on domestic inflation developments and external pressures… There is significant uncertainty around our baseline forecasts, with risks tilted to the downside”
On Goldman Sachs Now Sees ECB Hiking Interest Rates in July – Goldman economist Sven Jari Stehn
“Given continued cost-push pressures and limited evidence of a sustained demand hit, recent ECB commentary has emphasized rising concerns… While a sharper slowdown in growth or renewed sovereign stresses could lead to a slower policy normalization, clearer signs of second-round effects could require a faster exit”
On Philippines May Consider Rate Increase in June – Governor Benjamin Diokno
“We have another meeting in June. And maybe that’s the time when we will consider the increase in policy rate. We can afford to wait as to what will be the move of the Fed in the next two meetings. Right now, there is no evidence of second round effects on the demand side… We’re not concerned about the depreciation”
On Citi tells clients to buy bonds after market rout – Citi CIO David Bailin
“With recent bond valuation changes, we see an opportunity to create ‘negative correlations’ in assets in portfolios… When bonds are expensive and stocks are too, there is less benefit in allocating assets between them. With bonds having been repriced so massively, the asset allocation value of bonds has increased commensurately”… With yields having jumped into the 2.5% to 3% range, Bailin says they now offer good value in a slowing global growth environment
Top Gainers & Losers – 26-Apr-22*
