US short-end bond yields rose on Friday with 2Y Treasury up 12bp to 4.24% and the 5Y up 8bp to 4.01%. The peak Fed Funds Rate currently stands at 4.74% for the FOMC’s May 2023 meeting, up 7bp. US credit markets saw a widening of IG CDS spreads by 3.5bp with HY spreads also moving higher, by 16bp. US equity markets were lower on Friday with the S&P and Nasdaq down 1.7% and 1.8% respectively.
European equity markets were also down by ~2%, and credit markets saw EU Main CDS spreads rise by 4.6bp and Crossover spreads move 18bp higher. The UK government announced permanent tax cuts costing £45bn per year ($47bn) and plans to borrow an additional borrowing of £72bn ($79bn) over the next six months. This comes as UK’s budget deficit is expected to hit 8% of GDP in 2022/23 as per the NIESR. The sterling fell 3% post the announcement to a 37-year low at below 1.09 to the dollar. Meanwhile 5Y UK gilt yields jumped by a massive 50bp, the largest daily spike in 31 years, to 4.06% while the 10Y rose 33bp to 3.83%.
Asia ex-Japan CDS spreads widened 7.8bp. Asian equity markets have opened lower by over 0.5% today.
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New Bond Issues
Oriental Capital raised $230m via a 3Y bond at a yield of 7%. The bonds are guaranteed by Yancheng Oriental Investment & Development Group Co. Proceeds will be used for refinancing of existing offshore debts. The bonds have a change of control put at 101.
New Bonds Pipeline
- JBIC hires for $ 5Y Green bond
- Aozora Bank hires for $ 3Y Green bond
Rating Changes
- Fitch Downgrades Ghana to ‘CC’
- Fitch Revises Outlook on Genting Malaysia and Genting New York to Stable; Affirms Ratings
Term of the Day
Moratorium
A moratorium is a temporary suspension on debt wherein the borrower does not have to make any repayments. It is a waiting period with some protections for the borrower before repayments begin. However, the interest is accumulated until the end of the moratorium period and the accrued interest is then added to the principal amount of the debt.
Talking Heads
“Bottom line, all those years of central bank interest-rate suppression — poof, gone… These bonds are trading like emerging market bonds, and the biggest financial bubble in the history of bubbles, that of sovereign bonds, continues to deflate”
Glen Capelo, managing director at Mischler Financial
“With more Fed rate hiking coming and quantitative tightening, as well as the possibly more government debt issuance down the road amid less Treasury buyers out there now, it all just means higher rates… The 10-year yield is definitely going to get closer to 4%”
Andrzej Skiba, head of the BlueBay US fixed-income team at RBC Global Asset Management
“Whether 4.6% is the peak rate or they have to go further depends on the inflation trend”
On Global Bonds Tumbling as UK Tax Cuts Deliver Fresh Headwinds
Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC
“Markets are continuing to digest the implications of the UK’s fiscal statement and the massive move in gilts”
James Wilson, a senior portfolio manager in Melbourne at Jamieson Coote Bonds
“It’s a sell everything world!”
On Japan not intervening to defend 145 yen line-in-the-sand
“It’s unlikely Japan will continue intervening to defend a certain line, such as 145 yen to the dollar… It’s impossible to reverse the market’s broad trend with intervention alone. The most authorities can do is to soothe markets when currency moves become very volatile”
Top Gainers & Losers – 26-September-22*
