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US Treasury yields were marginally lower by 2-4bp across the curve on Monday. Fed Governor Michelle Bowman retreated from her hawkish view saying that she now sees US monetary policy as “sufficiently restrictive”. Also, Atlanta Fed President Raphael Bostic said that although inflation had come down more than he expected, he has a “natural bias to be tighter”. US credit markets saw IG CDS spreads tighten by 2.5bp and HY spreads tighten 13bp. US equity markets closed higher, with the S&P and Nasdaq up 1.4% and 2.2% respectively.
European equity markets however ended lower. Credit markets in the region saw the European main CDS spreads tighten by 1bp and crossover spreads tighten by 5.1bp. Asian equity markets have opened broadly weaker today. Asia ex-Japan IG CDS spreads widened by 2.6bp. Chinese authorities indicated that they may lower the amount of money that banks must set aside as reserves to boost lending.
Saudi Arabia raised $12bn via a three-part deal. It raised:
The notes are unrated. The sovereign is rated A1/A/A+. Proceeds will be used for general domestic budgetary purposes.
STT GDC raised S$450mn via a PerpNC6 sustainability-linked bond (SLB) at a yield of 5.7%, 30bp inside initial guidance of 6% area. The subordinated notes are unrated. If not called by 15 January 2030, the coupon resets then and every six years thereafter at the prevailing SGD 6Y SORA + 298bp plus a coupon-step-up of 100bp. Besides, the notes have a dividend pusher with 12-month look back period and also a dividend stopper. Private banks have a concession of S$0.25. The sustainability performance target (SPT) is based on renewable energy consumption for the entities and assets within the measurement boundaries constituting at least 60% of their total aggregate electricity consumption. Following the occurrence of a step-up event (if any), an SLB-linked 25bps step-up per annum would commence from the eighth distribution payment date on 15 January, 2028. Proceeds will be used for general corporate purposes, including refinancing its existing borrowings and financing of investments, acquisitions, general working capital and/or capex.
SK Hynix raised $1.5bn via a two-trancher. It raised $500mn via 3Y bond at a yield of 5.539%, 35bp inside initial guidance of T+180bp area. It also raised $1bn via a 5Y bond at a yield of 5.605%, 33bp inside initial guidance of T+200bp area. The senior unsecured notes are rated Baa2/BBB-/BBB, in-line with the issuer. Proceeds will be used for general corporate purposes.
ANZ raised $2bn via a two-tranche deal. It raised $1.2bn via 3Y bond at a yield of 4.75%, 27bp inside initial guidance of T+90bp area. It also raised $800mn via a 3Y FRN at SOFR+81bp vs. initial guidance of SOFR equivalent. The senior unsecured notes are rated Aa3/AA-/A+. Proceeds will be used for general corporate purposes. ANZ may redeem the notes in whole but not in part for certain tax reasons.
Ziraat Bankasi raised $500mn via a 5Y sustainable bond at a yield of 8.125%, 3.75bp inside initial guidance of 8.5% area. The senior unsecured notes are rated B- by Fitch. Net proceeds will be used for eligible loans in accordance with Ziraat Bank’s Sustainable Finance Framework.
Deutsche Bank raised €2bn via two-part deal. It raised €1bn via 2Y FRN bond at 3m Euribor+65bp, 30bp inside initial guidance of 3m Euribor+95bp area. It also raised €800mn via a 6NC5 bond at a yield of 3.8%, 25bp inside initial guidance of MS+150bp area. The senior preferred notes are rated A1/A/A and received orders of over €4.3bn, ~2.2x issue size.
BBVA raised €1.25bn via a 10Y bond at a yield of 3.962%, 25bp inside initial guidance of MS+160bp area. The senior preferred notes are rated A3/A/A- and received orders of over €2.45n, ~2x issue size. Proceeds will be used for general corporate purposes.
Dividend pushers are a common covenant seen in perpetual bonds issued by both banks and corporates that require the issuer to make a coupon payment if it has paid a dividend on its shares. These covenants can be found in a bond’s prospectus or offering circular. Dividend pushers are included in a bond’s terms to provide confidence to bond investors that they would be paid coupons if the issuer’s stockholders are paid a dividend.
Dividend pushers are sometimes used along with dividend stoppers, which prohibit issuers from paying a dividend on its stock if it has not made a coupon payment on its perpetual bonds.
On the Fed’s Policy Rate and Bias
Federal Reserve Governor Michelle Bowman
“My view has evolved to consider the possibility that the rate of inflation could decline further with the policy rate held at the current level for some time… I remain willing to raise the federal funds rate further at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed”
Federal Reserve Bank of Atlanta President, Raphael Bostic
“I’ve got a natural bias to be tighter… I want to make sure we are really, really there… We have to be sensitive to the pace of change”
On Zero-Coupon Treasuries Set Record on Investor Rush to Lock In Yields
JPMorgan team led by Jay Barry
“There was room for pension funds to increase fixed income allocations… felt more comfortable adding fixed income exposure as yields turned”
On Last Year’s Risk Rally Has Legs ‘Well Into 2024’ – BlackRock
“That once again highlighted how hopes and disappointments about the Fed drove market flip-flops throughout 2023… final rally was no different, in our view. It has left equity markets priced for a near-perfect outcome: a soft landing… We stay nimble and think macro risks need to be deliberately managed”
On Mexico Peso Rising With EM Currency Peers as Dollar Slips
Bertrand Delgado, strategist at SocGen
“In the measure that US inflation keeps falling, especially core inflation, this will keep favoring global risk appetite and Latin America in particular… Markets are expecting that this week inflation data could open the door to see a more dovish Fed”