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US Treasury yields dropped sharply across the curve on Tuesday. The 2Y yield fell 17bp and the 10Y fell 10bp. Fed official Christopher Waller, considered one of the most-hawkish members said that he is “increasingly confident that policy is well positioned to slow the economy and get inflation back to 2%”. Further, on the dovish side, Chicago Fed President Austan Goolsbee (voting member) acknowledged the decline in inflation and New York Fed President John Williams (voting member) called it “encouraging”. US consumer confidence rose for the first time in four months in November, helped by optimistic views about the outlook for the labor market. The Conference Board’s Consumer Confidence Index increased to 102 from a downwardly-revised 99.1 in October and estimates of 101. Also, the US Treasury concluded the auction of a $39bn 7Y note. The auction was met with soft demand with a bid-to-cover of 2.44x, down from 2.70x in October and a tail of 2.1bp. US credit markets saw IG CDS spreads tighten 0.6bp and HY tightening 3.3bp. Equity markets were slightly lower with the S&P and Nasdaq up 0.1-0.3%.
European equity markets were slightly lower. In credit markets, European main CDS spreads were wider by 1.3bp and crossover spreads tightened by 4.9bp. Asian equity markets have opened weaker today. Asia ex-Japan IG CDS spreads were wider by 3.1bp.
Macquarie $ 3Y FRN/3Y/11NC10 at SOFR equi/T+130/235bp area
Avic International Leasing $ PerpNC3 at 6.65% area
BNP Paribas raised $2bn via a 11NC10 senior preferred bond at a yield of 5.894%, 30bp inside initial guidance of T+185bp area. If uncalled, the coupon will reset at the overnight SOFR plus a spread of 186.6bp and will be paid quarterly. The bonds have expected ratings of Aa3/A+/AA-. Proceeds will be used for general corporate purposes.
EDF raised €1bn via a 3.5Y green bond at a yield of 3.825%, 37bp inside initial guidance of MS+110bp area. The senior unsecured bonds have expected ratings of Baa1/BBB/BBB+, and received orders over €3.3bn, 3.3x issue size. Proceeds will be allocated to EU-Taxonomy aligned nuclear energy capital expenditures in existing French nuclear reactors via look-back. The new bonds are priced at a negative greenium of 21.5bp to its existing 4.125% non-green bonds due in 2027, that yield 3.61%.
China Citic Bank raised $500mn via a 10NC5 Tier 2 bond at a yield of 6.087%, 35bp inside initial guidance of T+200bp area. The bonds have expected ratings of Baa2, and received orders over $3.4bn, 6.8x issue size. Proceeds will be used for funding and general corporate purposes. If uncalled after 5 years, the coupon will reset at the 5Y US Treasury yield plus a spread of 165bp. In the case of a non-viability event, the issuer shall irrevocably (without the need for the consent of the holders of the notes) reduce the then outstanding principal amount of and cancel any accrued but unpaid interest by an amount equal to the write-off amount per note. A non-viability event occurs if the Hong Kong Monetary Authority is (i) of the opinion that a write-off or conversion is necessary, without which the issuer would become non-viable or (ii) a public sector injection of capital or equivalent support is necessary, without which the issuer would become non-viable.
Mongolia raised $350mn via a 5.5Y bond at a yield of 8.1%, 65bp inside initial guidance of 8.75% area. The senior unsecured bonds have expected ratings of B/B. The issuance received orders over $4.2bn, 12x issue size. APAC was allocated 46%, EMEA 32% and North America 22%. Asset managers and hedge funds took 93% of the deal and the rest was taken by banks, insurers and financial institutions. Proceeds will be used to repurchase any and all of its outstanding 8.75% 2024s under the terms of the tender offer that the issuer was conducting, and to pay costs and expenses related to the tender offer. The tender closed on Monday evening. As per Reuters, about $222.8mn of the 8.75% 2024s were tendered for $1,010 per $1,000 in principal. If there are remaining proceeds from the new issue, Mongolia intends to utilize them to repay the remaining outstanding 2024 bonds upon maturity and for any further debt management activities.
Nuclear green bonds are a type of ESG bond where proceeds from the issuance is used to finance nuclear energy projects. Broadly, they work similar to green bonds with the only difference being the use of proceeds for nuclear projects.
EDF raised €1bn via a 3.5Y nuclear green bond at a yield of 3.825%. EU lawmakers last year voted to give certain nuclear energy projects a sustainable label. Whilst the notes got an official green approval, nuclear continues to be a controversial topic amid concerns about waste disposal, possible weapons proliferation and accidental radiation risks.
On Fed likely done hiking rates, Pivot Ahead – Fed Governor Christopher Waller
“Inflation rates are moving along pretty much like I thought… increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%”… If the decline in inflation continues “for several more months … three months, four months, five months … we could start lowering the policy rate just because inflation is lower”
On still expecting another interest rate hike – Fed Governor Michelle Bowman
“My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way… it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before the pandemic”
On Treasury ‘Blunder’ Not a Mistake – Former Official, Amar Reganti
US needs to consider how its issuance will affect overall debt markets
“Moreover, if the Treasury had decided to dump duration into the market as the Fed was buying, it would be working at cross purposes with monetary policy
On Bets Fed Will Cut Interest Rates as Soon as Q1 – Bill Ackman, Pershing Square founder
“What’s happening is the real rate of interest, which is what impacts the economy, keeps increasing as inflation declines… there’s a real risk of a hard landing if the Fed doesn’t start cutting rates pretty soon”