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US Treasury yields jumped across the curve on Tuesday with the 2Y up 7bp and the 10Y up 11bp, following some hawkish comments by Fed governor Christopher Waller. Waller said that the Fed should take a cautious and systematic approach when it begins cutting interest rates. While he showed an openness to cutting rates, he appeared to push back against market expectations for as many as six rate cuts this year. US IG CDS spreads widened 1.3bp and HY spreads widened 8.3bp. S&P fell 0.4% and Nasdaq fell 0.2%
European equity markets ended lower. Credit markets in the region saw the European main CDS spreads widen by 0.9bp and crossover spreads widen by 1.6bp. Asian equity markets have broadly opened weaker today. Asia ex-Japan IG CDS spreads widened by 4.1bp. China’s economy grew around 5.2% in 2023, surpassing the government’s official growth target for the year, said Chinese Premier Li Qiang ahead of the release of its official 2023 GDP growth figure. The Asia ex-Japan dollar bond market had its busiest day since November, with a total issuance of $2.75bn from five companies being launched and then priced yesterday.
Shriram Finance raised $750mn via a 3.25Y social bond at a yield 6.625%, 37.5bp inside initial guidance of 7% area. The bonds are rated BB/BB (S&P/Fitch). Proceeds will be used in accordance with the issuer’s social finance framework and as may be permitted by the RBI ECB guidelines. The bond’s maintenance covenants include but are not limited to a security coverage ratio >= 1 and that the security will at all times consist of standard assets. The new bonds are priced 49.5bp tighter to its existing 7.638% bonds due September 2026 that yield 7.12%.
SK Battery America raised $500mn via a 3Y green bond at a yield of 4.999%, 40bp inside initial guidance of T+140bp area. The bonds are rated Aa3. Proceeds will be used to finance or refinance, in part or in full, new and/or existing eligible projects as defined in its green financing framework. The guarantor is Kookmin Bank.
Morgan Stanley raised $6.75bn via a four-part deal. Details are given in the table below:
Proceeds will be used for general corporate purposes.
JPMorgan raised $8.5bn via a four-part deal. Details are given in the table below:
The senior unsecured notes are unrated.
Sumitomo Mitsui Finance raised $500mn via a 5Y bond at a yield of 5.109%, 27bp inside initial guidance of T+150bp area. The senior unsecured bonds are rated A- (S&P). Proceeds will be used for general corporate purposes.
SATS raised $500mn via a 5Y bond at a yield of 4.828%, 17bp inside initial guidance of T+120bp area. The senior unsecured bonds are rated A3. The issuer is Sats Treasury Pte Ltd (SATREA) and SATS is the guarantor. Proceeds will be used to refinance existing debt, which may include borrowings from banks.
POSCO raised $500mn via a 3Y green bond at a yield of 5.052%, 40bp inside initial guidance of T+150bp area. The senior unsecured bond is rated Baa1/A-. Proceeds will be used for financing or refinancing, in whole or in part, of eligible green projects in accordance with the issuer’s sustainable financing framework dated December 2023. The new bonds were priced 5bp tighter to its 4.5% 2027s that currently yield 5.11%.
Housing & Development Board (HDB) raised S$800mn via a 5Y green bond at a yield of 2.977%, unchanged from initial guidance. The senior unsecured bonds are rated AAA (Fitch). Proceeds will be used to finance or refinance eligible green projects as set out in its green finance framework.
UniCredit raised €1bn via a 7NC6 senior non-preferred bond at a yield 4.348%, 30bp inside initial guidance of T+210bp area. The notes are rated Baa3/BBB-/BBB-, and received orders of over €1.5bn, 1.5x issue size.
Debt covenants (also known as loan covenants, banking covenants or financial covenants) are lending restrictions in financial agreements that limit the actions of the borrowers. Lenders typically use covenants to ensure borrowers will operate within certain rules so that borrowers can repay their debt.
Covenants can either be positive or negative. With positive covenants, borrowers promise to do certain actions such as maintain a certain debt to equity ratio, interest coverage ratio, or level of cash flow, etc. With negative covenants, borrowers are restricted from certain actions such as to sell certain assets or incur more debt. Investors can find the covenants on a bond in its offering circular or prospectus.
On US Companies Pay Up to Hedge Debt After Interest-Rate Volatility Soars
Amy Yan, co-head of global rates and currencies solutions at BofA
“With rates coming down dramatically and corporations having financing needs in 2024 and beyond, treasurers are jumping on the ability to lock in lower Treasury yields”
Vineer Bhansali, founder of LongTail Alpha
“This is a very confusing, dangerous time”… expect 10Y Treasury yields to trade in a wide range between 3.65% and 5% in the months ahead
Safehold CFO, Brett Asnas
“While these hedges protect us through next year, they can be unwound for cash at any point”
On Rates Party Almost Over for European Banks – JPMorgan
“We are at the point where earnings-per-share downgrades will gather pace… see earnings growth coming to an end in 2024 and after a stellar 22% net interest income growth in 2023”
On Markets too complacent on Fed pivot and US-China ‘cold war’ – Bridgewater’s Greg Jensen
Markets are too complacent about risks around an expected shift in U.S. monetary policy, political uncertainty in the United States and geopolitical tensions with China