The month of November was a welcome relief for bond investors as 86% of dollar bonds in our universe delivered a positive price return (ex-coupon). November is the only month this year where bonds have moved higher after a 10-month losing streak. 92% of all Investment Grade (IG) dollar bonds in our universe ended the month in the green, outperforming the High Yield (HY) segment that saw 78% of dollar bonds in the green.
Benchmark yields shifted lower across the board as inflation slowed, leading to expectations of smaller rate hikes ahead by the Fed. US CPI for October came in at 7.7%, lower than expectations of 7.9%. Core CPI came at 6.3%, also lower than expectations of 6.5%. The softer inflation print led to a rally in US Treasuries, pushing yields lower by over 25-30bp across the board with a risk-on rally across equity and credit markets. Fed speakers have also come in support of slower rate hikes including Jerome Powell who just yesterday said that the “time for moderating the pace of rate increases may come as soon as the December meeting” strengthening the chances of a 50bp hike in December (currently at 79%). With this, the US Treasury curve bull flattened with the 2s10s curve inverting to levels of -70bp, its lowest since 1981.
The move lower across benchmark yields especially in the long-end saw IG bonds outperform due to its greater duration sensitivity. Longer-dated bonds of high-rated Alibaba, Tencent and Saudi Arabia saw gains of over 15-25% in the AAA to A- segment. In the BBB+ to BBB- segment, dollar bonds of Chinese developers Vanke, Jinmao and Central Plaza (Beijing Capital) rallied over 50-80%. These companies were among a list of real estate developers that received a combined $159bn in credit lines from Chinese domestic banks that led to a broad rally across the sectors' bonds. Meanwhile among the losers, American retailer Macy's bonds fell over 8% last month - the company reported net income of $108mn vs. $239mn last year and gross margins of 38.7% vs. 41% last year.
Among the high yield names, bonds of Chinese property developers witnessed an incredible rally following a string of measures from Beijing to ease liquidity and operational pressures. Among the noteworthy gainers from the space were Country Garden, Longfor, Shui On, Greentown, Gemdale, and Hopson, some of whose bonds jumped 5x through the month. This began with China's 16-point rescue package plan for the property sector. Post that, some of China's largest banks including ICBC, BOCOM, CCB, AgBank, BOC and Postal Savings Bank agreed to extend over $159bn in credit lines to many of these developers, who thus witnessed sharp gains in their bonds soon after (see chart below). Other gainers included Macau casino operators like Wynn Macau, Melco, Sands China etc. after the incumbents were given new licenses to operate from January, thereby putting to ease the threat of GMM (backed by Genting's Chairman) getting one of the licenses. Pakistan's dollar bonds also gained with the nation announcing the redemption of a $1bn bond three days ahead of its maturity on December 5.
Among the losers, the most prominent was Credit Suisse whose bonds fell over 20%. The Swiss lender warned of another quarter of losses, expecting a $1.6bn Q4 loss on account of large withdrawals by wealthy clients. Its EUR 5Y CDS spreads have now hit an all-time high of 444bp signaling increased risks surrounding the bank. Greenland Holdings' dollar bonds dropped over 40% after the company defaulted on its bond maturing last month. Japan's e-commerce company Rakuten's bonds dropped over 10% after the company launched a $500mn 2Y high yield dollar bond at a yield of 12%. For more on the gainers and losers, scroll down to the "Top Gainers & Losers" section.
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Issuance Volumes
Global corporate dollar bond issuances stood at $166bn, up 17% from October's $142bn in issuances, and lower by 23% YoY. Given the volatile market conditions, persistent inflation and the path of the Fed's aggressive rate hikes, only 9% of the issuances came from the high yield space with the remaining 89% of deals from the investment grade space. The balance 2% were from unrated deals.
Asia ex-Japan & Middle East G3 issuances stood at just $11.4bn, down 44% MoM and 68% YoY. Investment grade issuances dropped to about a third of October's issuance to just $6.9bn while high yield issuances stood at a mere $1.7bn. The issuance volume from the region was the lowest since August this year which saw only $3.96bn in deals.
Largest Deals
The largest deals in November 2022 were led by Amazon's and GE Healthcare’s $8.25bn five and six part deals respectively, Oracle’s $7bn four-trancher and Philip Morris’ $6bn five-part issuance. Besides these, banking majors like Citigroup raised $2.75bn whereas BofA and Credit Suisse raised $2bn in some of the largest deals last month.
In the APAC & Middle East region, the largest deals were led by Turkey's $1.5bn issuance that priced at a yield of 10% to help push Turkey's borrowing toward its target of $11bn for 2022. Besides, Dubai Islamic Bank (DIB) raised $1.5bn via a dual-trancher and Bank of China raised $1.2bn via three of its branches in Luxembourg, Paris and Dubai.
Top Gainers & Losers
The biggest gainers during the month saw a welcome surprise with Chinese property developers' bonds leading the tables, including the likes of Longfor Group, Greentown, Wanda, Country Garden, Gemdale, Hopson, Seazen and several others. The surge across these bonds began with China's 16-point rescue package plan for the property sector. Post this, some of China's largest banks in ICBC, BOCOM, CCB, AgBank, BOC and Postal Savings Bank agreed to extend over $159 in credit lines to many of these developers that triggered the broad rally among the higher rated HY developers, besides IG names like China Vanke. Besides bonds of China real estate companies, Gazprom's bonds continued its rally from prior months. Also, Chinese conglomerate Fosun International saw its bonds jump as much as 50% as the company kicked-off its asset sales process.
On the losers list, the biggest losses were seen in Greenland Global's dollar bonds after the company defaulted on its note due in November. AMC's dollar bonds dropped over 30% after it reported soft earnings combined. Another large loser was Carvana whose bonds that dropped over 30% after it posted a wider-than-expected loss amid its cash burn. Hong Kong's NWD's dollar perps fell over 25% with concerns that Hong Kong’s mass-residential prices could drop 10-15% before the end-2023 and that mortgage rates could be much higher than housing rental yields for a prolonged period. Also, Ghana's dollar bonds fell by ~25% with the country proposing a 30% haircut and planning to forgo some interest payments as part of its debt-sustainability plan to secure a $3bn IMF loan.
