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US Treasury yields were flat with across the curve yesterday. The US Leading Index came at -0.1% for December, slightly better than expectations of -0.3% and November’s -0.5% print. Looking at credit markets, US IG CDS spreads widened 0.4bp while HY spreads tightened 1bp. Equity markets saw the S&P and Nasdaq close higher by 0.2-0.3%.
European equity markets ended higher. Credit markets in the region saw the European main CDS spreads tighten by 0.8bp and crossover spreads tighten by 5.5bp. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads widened by 4.1bp. The BOJ kept its monetary policy setting unchanged during its meeting today.
Mirae Asset raised $600mn via a two-part deal. It raised $300mn via a 3Y bond at a yield of 6.152%, 35bp inside initial guidance of T+235bp area. It also raised $300mn via a 5Y bond at a yield of 6.244%, 38bp inside initial guidance of T+260bp area. The senior unsecured bonds are rated Baa2/BBB. Proceeds will be used for general corporate purposes.
Brazil raised $4.5bn via a two-part deal. It raised $2.25bn via a long 10Y bond at a yield of 6.35%, 27.5bp inside initial guidance of 6.625% area. It also raised $2.25bn via a long 30Y bond at a yield of 7.15%, 35bp inside initial guidance of 7.5% area. The senior unsecured bonds are rated Ba2/BB/BB. Proceeds will be used to pay outstanding indebtedness. The new 10Y bond was priced at a new issue premium of 27bp over its existing 8.25% 2034s that currently yield 6.08%.
A new issue premium refers to the incremental higher yield (yield premium) on an issuer’s newly issued bond over bonds by the same issuer with a similar maturity. A newly issued bond by an issuer typically offers a higher yield to its own comparable bond to entice investor demand in the security. Sometimes, if an issuer does not have a comparable bond with a similar maturity, but does have a yield curve (i.e., other bonds issued across different maturities), analysts can interpolate and arrive at an estimated yield for a hypothetical comparable. However, while new issue premiums are typically the case, it is not necessary that an issuer’s new bond would always have a new issue premium.
On Fed Should Stop Quantitative Tightening, Reduce Rates Soon – Bill Gross
“I would stop quantitative tightening… just not a correct philosophy and policy at this point in time to continue to tighten quantitatively. Real interest rates are simply too high”
On Goldman’s Schiffrin Sees Four Rate Cuts, 2% Inflation for 2024
Joshua Schiffrin, Goldman Sachs
“The first half of 2024 will be a different kind of year than the past four with choppy rangebound markets and no giant trends… I believe very much in a March cut… think they recognize there are a lot of benefits to starting on the sooner side”
On Repo market may throw a fit, spur Fed to action
James Tabacchi, CEO of South Street Securities, an independent broker dealer active in Treasury markets
“Liquidity could start to show some cracks as funding needs continue to grow. It is a balancing act, and it won’t take a lot to cause a disruption in the funding markets.”
John Velis, forex and macro strategist for the Americas at BNY Mellon
“We don’t know when we get to that point from abundant” to insufficient liquidity, Velis said. “The market will tell us”