Malaysia, Sino-Ocean, BOC Launch Bonds; Macro; Rating Changes; Talking Heads; Top Gainers & Losers

S&P fell 0.7% and Nasdaq was down 0.9% as equities continued to fall for a second day. Netflix shares were down 9% after-market after reporting a slowdown in subscribers. US10Y Treasury yields fell 5bp to 1.57%. European equities fared worse with DAX down 1.6% while CAC and FTSE were down 2%. US IG CDS spreads were 1.4bp wider and HY was 6.4bp wider. EU main CDS spreads were 1.1bp wider and crossover spreads widened 6.2bp.  Asian equity markets are lower by 1% today after Wall Street’s losses yesterday and Asia ex-Japan CDS spreads have widened 5.4bp. It’s a busy day at the primary markets with six new dollar deals launched including Malaysia, Sino-Ocean and BOC.

New to the BEV App? BondEvalue will be conducting a complimentary session on Navigating The Bond Markets by Leveraging the BEV App today at 5pm SG/HK. This session is aimed at helping bond investors in tracking their investments using the BondEvalue App.

New Bond Issues

• Malaysia $ 10Y sustainability/30yr Sukuk at T+90bp/T+115bp areas; books $2.3bn
• Sino-Ocean Group $ 5Y green bonds at T+305bp area; books over $1bn
• BOC Luxembourg branch $ 5Y green bond at T+100 area
• BOC Singapore branch $ 3Y green bond at T+90 area
• KNOC subsidiary Harvest Operations $ 3NC1 at T+100bp area
• Changchun Urban Development $ 3Y bond at 4.5% area

Kaisa Group raised $200m via a tap of their 9.75% 2023s at a yield of 9.15%, 30bp inside initial guidance of 9.45% area. The bonds have expected ratings of B2/B and received orders over $2.2bn, 11x issue size. Asia bought 88% and Europe 12%. Fund managers received 76%, private banks 14% and corporates 10%. Proceeds will be used for offshore debt refinancing. The bonds were issued alongside a tender offer for its $300mn 7.875% bonds due June 9, 2021 and $400mn 7.875% bonds due June 30, 2021. The purchase price for both the bonds is $1,001.5 per $1,000 in principal. The bonds currently trade at 100.14 and 100.28 respectively.

Taiwan Semiconductor Manufacturing (TSMC) raised $3.5bn via a three-trancher. It raised:

• $1.1bn via a 5Y bond at a yield of 1.3% or T+50bp, 30bp inside initial guidance of T+80bp area
• $900mn via a 7Y bond at a yield of 1.788% or T+55bp, 30bp inside initial guidance of T+85bp area
• $1.5bn via a 10Y bond at a yield of 2.269% or T+75bp, 25bp inside initial guidance of T+100bp area

The bonds have expected ratings of Aa3/AA-. In March, TSMC said they planned to issue up to $4.5bn in dollar bonds this year.

Korea Hydro & Nuclear Power raised $500mn via a 5Y bond at a yield of 1.377%, 32.5bp inside initial guidance of T+90bp area. The bonds have expected ratings of Aa2/AA and received orders over $2.5bn, 5x issue size. The issuer is wholly owned by Korea Electric Power Corp (Kepco) and operates nuclear and hydroelectric power plants.

New Bond Pipeline

• Incheon Int’l Airport $ 5Y green bond
• Pakuwon Jati hires $ 7NC4 bond
• AVIC Automotive Systems Holdings $ bonds
• Shangrao Innovation Development Industry Investment $ credit-enhanced bond offering
• Santos $ Yankee bond

• China Water Affairs Group $ green bond

• BOC Aviation $ bond

Rating Changes

• Moody’s downgrades Fiji to B1; outlook remains negative
• Fitch Revises Outlook on Concord New Energy to Stable; Affirms at ‘BB-‘
• Celulosa Arauco y Constitucion Outlook Revised To Stable From Negative By S&P On Expected Deleveraging Amid Higher Pulp Prices
• Darden Restaurants Inc. Outlook Revised To Positive By S&P On Expectations For Faster Recovery; Ratings Affirmed
• Fitch Affirms Marathon Petroleum at ‘BBB’; Revises Outlook to Stable
• Fitch Withdraws Tahoe’s Ratings
• Moody’s changes Nexa’s outlook to stable; affirms Ba2 rating
• Moody’s withdraws Lifestyle’s ratings due to insufficient information

Talking Heads

On distress still lurking despite drop in bankruptcies – Mark Kronfeld, BlackRock managing director

“Just because you’re not seeing bankruptcy filings doesn’t mean there isn’t distress,” said Kronfeld. “Companies, even with increased leverage, are able to get cheap financing,” but risks remain, he said.

On a $1 trillion liquidity surge morphing into a leverage boom

David Brown, co-head of global investment grade fixed income at Neuberger Berman

“Today’s liquidity becoming tomorrow’s leverage is going to be the story of 2021 for at least some companies,” said Brown.

Terence Wheat, senior portfolio manager of investment-grade corporate bonds at PGIM Fixed Income

“For many industries, this liquidity was supposed to be temporary,” said Wheat. “Now some companies may use it for acquisitions rather than paying down debt.”

Richard Hunter, global head of corporate ratings at Fitch Ratings

“Companies have chosen to lever up,” said Hunter. “The wild card is going to be companies’ choices now.”

Noel Hebert, director of credit research at Bloomberg Intelligence

“Ratings agencies have become comfortable with higher and higher leverage, thus companies are more and more happy to take advantage of it,” Hebert said. “There’s an incentive to hold leverage at elevated levels because there’s no real mechanism that’s punishing you.”

On the revival of bonds as buffer for market shocks

Eric Lonergan, a macro hedge fund manager at M&G Investments

“You don’t care about diversification when things are going right,” he said. “You care when something goes wrong. Right now I have a high degree of confidence that if that happens, Treasuries will do well. It’s insurance against anything . . . except much higher US inflation.”

Steven Major, chief bonds analyst at HSBC

“We should not underestimate how, in an increasingly interconnected global financial system, ‘stuff happens’,” wrote Major. “There is far too much leverage in the system, much of which may not be visible until something happens. And when these shocks come, money flows to the safest of safe havens, US government bonds invariably being the first choice.”

On investors shying away from bonds

Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database

When we talk to advisors, what we hear overwhelmingly is they don’t really want to own bonds at all right now if they can help it,” said Nadig. “If you look at what people are doing in their equity portfolios, it looks like the rotation we would normally expect into a risk-off trade is just missing that core Treasury allocation,” Nadig said. “Advisors tell me flat out they just don’t think they’re getting paid to take any risk, much less the duration risk baked into anything beyond the 2-year [Treasury rate] on the curve.”

John Hollyer, Vanguard’s global head of fixed income

“We look at high-quality corporate bonds, which I think do a good job diversifying a portfolio,” Hollyer said. “It’s not going to make or break a portfolio, but it is a good source of diversification and income.” “We really don’t see inflation emerging as a major threat, and we think the Fed will continue to demonstrate the patience they’ve shown so far before tapering or tightening,” he said. “We would say that a balanced portfolio with some holdings in bonds is going to achieve some better efficiency in light of potential for equity volatility.”

On traders sending down yields on lower stocks, global virus concerns – Brian Bethune, Tufts University economist

“There’s a repricing of what the international environment is going to look like,” even though the U.S. economic recovery looks strong, Bethune said.

Top Gainers & Losers – 21-Apr-21*