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US Treasury yields were 3-5bp higher across the curve on Wednesday. The Federal Reserve’s January meeting minutes came out yesterday where, “most participants noted the risks of moving too quickly to ease the stance of policy”. Separately, Richmond Fed President Thomas Barkin said that there were concerns about persistent inflation for service industries and housing. He added that the data since the January meeting “definitely did not make things easier. It made things harder”. Equity markets were mixed as the S&P rose 0.1% while Nasdaq fell 0.3%, with tech stocks continuing to trade weaker. Looking at credit markets, US IG CDS spreads tightened 0.2bp while HY CDS spreads were almost unchanged.
European equity markets ended slightly mixed. Credit markets in the region saw the European main CDS spreads tighten by 0.7bp while crossover spreads tightened by 3.2bp. Asian equity markets have opened marginally higher today. Asia ex-Japan IG CDS spreads were 0.8bp tighter.
First Abu Dhabi Bank (FAB) raised $850mn via a 5Y bond at a yield of 5.17%, 30bp inside initial guidance of T+120bp area. The senior unsecured notes are rated Aa3/AA-/AA-, and received orders of over $2.1bn, 2.5x issue size. The new bonds are priced at a new issue premium of 25bp over its existing 4.779% sukuk due 2029 that currently yield 4.92%.
CISCO raised $13.5bn via a jumbo seven-part deal. Details are given in the table below:
The senior unsecured notes are rated A1/AA-. Proceeds will be used for general corporate purposes including to partially finance the proposed acquisition of Splunk Inc. Theere is a Special Mandatory Redemption clause – if the deal is not completed by 20 March 2025 (Outside Date) or five business days after any later date to which the parties may agree to extend the Outside Date, then CISCO will be have to redeem all of the notes at 101% of the aggregate principal, plus accrued and unpaid interest, but not including, the Special Mandatory Redemption Date.
Dubai Islamic Bank hires for $ 5Y Sust. bond
Macro Linked Bonds are a type of sovereign bond that was being planned by Sri Lanka in October 2023, as part of its debt restructuring process. Here, the bond’s coupon payments automatically reduce beginning in 2027 if Sri Lanka fails to meet some of the economic targets linked to its IMF program, a step-down in payments. Holders of the MLBs would then agree to grant additional debt relief if needed to achieve the IMF’s Debt Sustainability Analysis target. In the case of Sri Lanka, this would be either the ratio of its gross financing needs (GFN)-to-GDP or debt-to-GDP. Sources said that if the GFN/GDP ratio rises above 4.5% in 2027, coupons will adjust downwards. They also noted that other countries like Ghana were also considering including MLBs as part of their restructuring.
On Fed worried about cutting rates too soon, minutes of January meeting show
Quincy Krosby, chief global strategist at LPL Financial
“It is clear that the message from the minutes, coupled with Fed speakers out in force, is that they are concerned about moving too quickly, before they declare a final victory… Given the uptick in prices, the Fed’s concerns appear valid”
Ryan Sweet, chief US economist at Oxford Economics
“If the central bank waits for clear signs that the labor market, or the broader economy, is deteriorating, they will be behind the curve”
On Markets underestimating risk of inflation re-accelerating – PIMCO CIO Dan Ivascyn
“We think the market is rightly suggesting that a soft landing in the U.S. is possible… However, credit spreads and equity valuations factor in a very low probability to the risk of either a recession or of inflation reigniting.. our view, when the Fed ultimately cuts interest rates … yields in longer-maturity bonds could rise further, pressuring prices”