US markets traded higher on Friday to end the week in the green and hitting new records after Powell’s speech at Jackson Hole, where he signaled that there were no immediate plans to raise rates and that the Fed would continue supporting the asset purchase program. Tech heavy Nasdaq ended 1.2% higher while the S&P was up 0.9%. Nasdaq and S&P added 2.8% and 1.5% during the week. Nearly all sectors ended in the green led by a 2.6% gain by Energy and 1.6% by Communication Services. European markets also inched higher – DAX, FTSE and CAC were up 0.4%, 0.3% and 0.2% respectively. Saudi’s TASI and UAE’s ADX moved higher by 0.5% and 0.4% respectively on Sunday. Brazil’s Bovespa gained 1.7% to reverse Thursday’s losses. Asian markets were mixed – Shanghai and HSI were up 0.5% and 0.3% while Singapore’s STI and Nikkei edged 0.8% and 0.3% lower. US 10Y Treasury yields eased 4bp to 1.30%. US IG tightened 1.9bp while HY CDS spreads tightened 9.9bp. EU Main and Crossover CDS spreads also tightened 0.8bp and 3.8bp respectively.
At the Jackson Hole economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Fed Chair Chair Jerome Powell said, “The Committee remains steadfast in our oft-expressed commitment to support the economy for as long as is needed to achieve a full recovery,” while adding, “We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance. My view is that the ‘substantial further progress’ test has been met for inflation.” He also said, “Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions.”
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New Bond Issues
- Zhenro Properties Group $ 363-day green bond at 7.4% area
- Xuchang General Investment $ 3Y at 4.8%
New Bonds Pipeline
- Adani Green Energy $ 144A/Reg S senior secured green bond
- Jinan Financial Holding hires for US$ Reg S bonds
- Sun Hung Kai hires banks for US$ Reg S senior bond offering
- Axis Bank hires for US$ 144A/Reg S sustainable perpNC5 AT1
- Fitch Affirms Poland at ‘A-‘/Stable; Upgrades Short-Term IDR to ‘F1’
- Fitch Upgrades CSN’s Senior Unsecured Rating and IDRs to ‘BB’
- Moody’s upgrades Ally Financial’s long-term senior unsecured rating to Baa3 from Ba1, concluding review, and assigns A3/Prime-2 deposit ratings to Ally Bank; outlook stable
- Diamond Sports Holdings LLC And Subsidiary Downgraded To ‘CCC’ By S&P On Greater Risk Of Debt Restructuring; Outlook Negative
- Hasbro Inc.Outlook Revised To Positive By S&P On Faster-Than-Anticipated Deleveraging
- Moody’s affirms Chengdu High-Tech Investment’s ratings, changes outlook to positive
- Moody’s changes outlook on EDF, EDFT, Edison and EDF Energy to stable; affirms ratings
- Sri Lanka Outlook Revised To Negative By S&P; ‘CCC+/C’ Ratings Affirmed
- Tongchuangjiuding Investment Management Group Outlook Revised To Negative By S&P On Uncertain Recovery; ‘BB/B’ Ratings Affirmed
- Moody’s changes outlook on Health and Happiness to negative from stable; affirms ratings
- Fitch Affirms and Withdraws Xiamen Xiangyu Group Corporation’s Ratings; Outlook Stable
Term of the Day:
Tier 2 Bonds
Tier 2 bonds are debt instruments issued by banks to meet their regulatory tier 2 capital requirements. Tier 2 capital (and thus tier 2 bonds) rank senior to tier 1 capital, which consists of common equity tier 1 (CET1) and additional tier 1 (AT1) capital. CET1 consists of a bank’s common shareholders’ equity while AT1 consists of preferred shares and hybrid securities or perpetual bonds. Tier 2 capital consists of upper tier 2 and lower tier 2 wherein the former is considered riskier to the latter. We have summarized banks’ liability structure in the table below.
From a bond investor’s perspective, tier 2 bonds are senior, and therefore less risky, compared to AT1 bonds as AT1s would be the first to absorb losses in the event of a deterioration in bank capital.
China Construction Bank has announced plans to issue up to RMB 240bn ($37bn) of bonds, of which RMB 120bn ($18.5bn) are expected to be tier 2 bonds.
Top Gainers & Losers – 30-Aug-21*