US Treasuries rallied across the curve led by the front-end after a slightly softer than expected inflation report. The US 2Y and 5Y yields were down 10-11bp  while the 10Y yield was down 8bp. US CPI came at 4.9% for April 2023, below expectations of 5% and lower than last month’s 5% print. Core CPI came at 5.5%, in-line with the surveyed 5.5% and lower than last month’s 5.6% print.

The peak Fed Funds Rate also fell to 5.07%, down 5bp. Following the inflation print, markets now expect a 91% chance of unchanged policy rates at the Fed’s June meeting vs. 79% yesterday. Equity indices closed higher with the S&P and Nasdaq up 0.5% and 1% respectively. Also, US IG and HY CDS spreads were tighter by 2bp and 8bp respectively.

European equity markets ended marginally lower. European main CDS spreads were 1.1bp tighter and crossover spreads tightened 4.8bp. Asia ex-Japan CDS spreads also tightened by 0.8bp. Asian equity markets have opened broadly in the red today.

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New Bond Issues

New Bond Issues 11 May 23


New Bonds Pipeline

  • BGK hires for $ 10Y bond
  • Korea Credit Guarantee Fund hires for $ 3Y Social bond
  • Melbourne Airport hires for € 10Y bond


Rating Changes

  • El Salvador Downgraded To ‘SD’ On Pension Debt Exchange; Distressed Exchange Subsequently Cured
  • Moody’s places Egypt’s B3 ratings on review for downgrade


Term of the Day

Selective Default

A Selective Default (SD) credit rating is assigned by S&P when the rating agency believes that the obligor/issuer has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A rating on an obligor/issuer is also lowered to D or SD if it is conducting a distressed debt restructuring.


Talking Heads

On Fed Getting Room to Hold in June as Inflation Shows Sign of Cooling

Gregory Daco, chief economist at EY

“A quick read would indicate a tilt towards some potential further tightening of monetary policy…  if you lift the cover and look at the underlying details in this report, actually they mostly point towards the higher likelihood of a pause”

Anna Wong, chief US economist at Bloomberg Economics

“While the April CPI report isn’t exactly reassuring, it also won’t jolt Fed officials into signaling another rate hike in June…  the slow progress in reducing core inflation highlights how unlikely it is that the Fed will cut rates this year.”

On UBS’s future AT1 bond sales possibly coming at a big cost

Simon Adamson, head of global financial research at CreditSights

“If UBS came to market today, it would have to pay up compared to the past… However way you look at it, it is going to reduce the credit worthiness of the acquiring bank”

Mark Holman, Managing Partner at TwentyFour Asset Management

“Right now, AT1 pricing is not attractive so we expect low issuance while yields are this high… Additionally, there is and will continue to be a Swiss premium on yields while investors try to digest the risk that [Swiss regulator] FINMA passed on to the market”

Elisabeth Rudman, head of global financial institutions at DBRS Morningstar

“There will be a few bumps along the way, but in five to six months time, probably no one will be worried specifically about the AT1 market and there will be appetite for AT1s from UBS”

On US Default Risk Worse Than 2011 – Sushil Wadhwani, Hedge Fund Manager & former BOE official

“The risk this time has to be that you will need significant market turbulence to get these folks to agree… I encounter quite a lot of investors with longer-term horizons who believe that any market reaction, any downdraft in equities, will be bought very quickly. In 2011 there were lots of people who believed that too and were suddenly shocked” 


Top Gainers & Losers – 11-May-23*

BondEvalue Gainer Losers 11 May 23

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