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US Treasury yields were mixed yesterday as the 2Y yield fell 6bp to 4.33% while the 10Y and 30Y yields moved 3-5bp higher. The Philadelphia Fed Manufacturing Index came at -3.7 in January, indicating a contraction in manufacturing activity in the region vs. December’s 6.3 print. The Richmond Fed Manufacturing Index came at -15 for January, lower than the expected -8 and prior month’s -11 prints. Looking at credit markets, US IG CDS spreads widened 0.5bp while HY spreads were flat. Equity markets saw the S&P and Nasdaq close higher by 0.3-0.4%.
European equity markets ended lower. Credit markets in the region saw the European main CDS spreads widen by 1.6bp and crossover spreads widen by 6bp. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads tightened by 1.4bp.
Bank of New Zealand raised $750m via a 5Y bond at a yield of 5.076%, 22bp inside initial guidance of T+125bp area. The senior unsecured bonds are rated A1/AA-. Proceeds will be used for general corporate purposes.
Hainan State Farms raised $300mn via a 3Y bond at a yield of 6.2%, 45bp inside initial guidance of 6.65% area. The senior unsecured bonds are rated BBB by Fitch. The issuer is Hainan State Farms International HK Co Ltd and Hainan State Farms Investment Holdings Group is the guarantor. Proceeds will be used to refinance existing offshore dues.
A second lien bond is a bond with a lien that is subordinated to its senior bonds. A lien is a legal right where a creditor can claim a security interest or seize control in an asset provided by the asset’s owner. It gives a type of a legal guarantee to the lender for obligations like loan or debt repayments. Bonds typically can be either first lien, which consist of senior secured debt, or second lien, which consists of junior or subordinated debt that rank below first lien debt in the capital structure. A bondholder of a ‘first lien bond’ gets repaid before all other liens and bondholders in the event of a default. Second lien holders get repaid only after the first lien holders get paid back.
On Man Group, Oaktree and Others Buying Bank Bonds That Cut Risk
Kaelyn Abrell, a partner and portfolio manager at ArrowMark Partners
“Activity is noticeably higher than prior years. Over the last two years, U.S. and Canadian banks have been the most active issuers”
Bob O’Leary, a managing director at Oaktree Capital
“Both regional and large banks are sitting with big embedded losses on their balance sheets. These losses might not have to be recognized immediately, but the people running the risk books for those banks probably feel pretty uncomfortable”
On Rewiring the World’s Biggest Bond Market to Transform Trading
Gary Gensler, SEC Chair
“Central clearing is one of those things in finance that, on net, lowers risk… A lot of finance doesn’t lower risk — it just moves it to parties more willing and able to hold it for a price”
Nathaniel Wuerffel, head of market structure at BONY Mellon
“It is going to transform the way people interact with the market and the way that the market functions… by far the biggest of the reform efforts that regulators have been working on”