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US Treasury yields were nearly unchanged. US Durable Goods Orders for January fell by the most in nearly four years, down 6.1%, worse than expectations for a 5% drop. This happened amid a sharp drop in bookings for civilian aircraft orders that plunged 58.9% following the troubles at Boeing. Separately, the US Consumer Confidence Index for February retreated after three straight monthly increases, to 106.7 vs. the downwardly revised 110.9 last month and forecasts of 115.0. Looking at credit markets, US IG CDS spreads tightened 0.6bp and HY CDS spreads were 4bp tighter. Equity markets were slightly higher with the S&P and the Nasdaq up 0.2-0.4%.
European equity markets ended mixed. Credit markets in the region saw the European main CDS spreads widen by 0.5bp while crossover spreads widened by 2.3bp. In Germany, the consumer sentiment index rose slightly heading into March, to -29.0 from a revised -29.6 the month before and in-line with forecasts. Asian equity markets have opened lower today. Asia ex-Japan IG CDS spreads were 0.8bp wider.
SMFG raised $1bn via a PerpNC10.25 bond at a yield of 6.602%, 65bp inside initial guidance of 7.25% area. The subordinated notes are rated Baa3/BB+. The issuer is Sumitomo Mitsui Financial Group Inc. Coupons are fixed until the first call date of 5 June 2034, and if not called by then, the coupon resets then and every five years thereafter to the then prevailing 5Y MS plus 228.3bp. Proceeds will be used to extend a perpetual subordinated loan, intended to qualify as AT1 capital and internal TLAC, to SMBC. SMBC intends to use proceeds of the loan for general corporate purposes. A going concern principal write-down would occur upon a capital ratio event. A capital ratio event will occur if its consolidated CET1 ratio falls below 5.125%. There is an optional tax event redemption that would happen in whole, but not in part. If a non-viability event or bankruptcy event occurs, the notes will be permanently written-down to zero.
BPCE raised S$400mn via a 10NC5 Tier 2 bond at a yield of 5%, 30bp inside initial guidance of 5.3% area. The subordinated bonds are rated Baa2/BBB/BBB+. The first call date on the notes occurs on 8 March 2029. The issuer may redeem the bond at par upon occurrence of a capital event, tax deduction event, withholding tax event or gross-up event.
Rabobank raised $2bn via a three-part deal. It raised:
The senior-preferred notes are rated Aa2/A+ and the senior non-preferred notes are rated A3/A-. Proceeds will be used for general corporate purposes.
Public Investment Fund (PIF) raised $2bn via a 7Y sukuk at a yield of 5.171%, 30bp inside initial guidance of T+115bp area. The senior unsecured notes are rated A1/A+ (Moody’s/Fitch), and received orders of over $15bn, 7.5x issue size. The issuer of the notes is Suci Second Investment Co. Proceeds will be used for general corporate purposes.
A Sukuk is a sharia-compliant fixed income instrument that essentially works similar to bonds. In a Sukuk, key differentiators vs. conventional bonds are:
– Investors share partial ownership of an asset rather than it being a debt obligation by the issuer
– The pricing is based on the underlying value of assets rather than credit worthiness
– The holder receives a share of underlying profits rather than interest payments (considered ‘riba’).
Sharia compliance broadly implies that any profits derived from these funding arrangements must be derived from commercial risk-taking and trading only; that interest income is prohibited on lending activities and; that the assets must be halal.
On Banks Must Do More on Counterparty Risks – Fed’s Michael Barr
“Banks need reliable, comprehensive, granular, and frequent information about their counterparties to make prudent decisions… Obtaining this information can be challenging because of client activity happening away from the bank
On ‘New Regime’ Calling for More Active Management – BlackRock Investment Institute
“Static asset allocations — or set-and-forget portfolios — are a reasonable starting point, but we don’t think they will deliver as in the past… Getting the asset mix right matters much more now… Macro uncertainty has ballooned since the pandemic struck – and dispersion of returns has increased”
On South Korea’s Retail Investors Joining Craze for India Bonds
Kim Jin Ha, head of global fixed income at Mirae Asset Management
“The public is growing more interested in India, unlike the past when only a few institutional investors showed interest”
Cho Jae Sung, general manager at Shinhan Bank
“The hottest topic is certainly the US these days, but outside of US assets, India is gaining attention as an alternative to China”