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US Treasury yields soared across the curve yesterday following the inflation print. The 2Y yield jumped 15bp and the 10Y yield was up over 10bp. US CPI came at 3.5% YoY, higher than the expected 3.4% and much higher than February’s 3.2% reading. Core CPI came at 3.8%, higher than the expected 3.7% and in-line with the prior 3.8% reading. As per CME probabilities, markets are only pricing-in two 25bp rate cuts by the Fed this year, the first in September and another in December. Also, the US 10Y Treasury’s auction saw weak demand with a bid-to-cover of only 2.34x vs. 2.51x previously and a lower than expected indirect take-up.
Separately, the FOMC’s March meeting minutes noted that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected”. While Fed officials expected that inflation would return to 2% over the medium term, they noted that “recent data had not increased their confidence that inflation was moving sustainably down to 2%”. US IG CDS spreads widened 1.9bp and HY spreads widened 13bp. The S&P and Nasdaq dropped by 1% and 0.8% respectively.
European equity indices ended higher. European IG CDS spreads widened 0.3bp and crossover spreads were 3.9bp wider. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads were 1.3bp wider.
Melco Resorts raised $750mn via a 8NC3 bond at a yield of 7.625%, ~18.75bp inside initial guidance of 7.75-7.875% area. The senior unsecured notes are rated Ba3/BB-. Proceeds will be used to make a partial repayment of the principal under its revolving credit facility (RCF), including accrued interest and associated costs, in accordance with a senior facilities agreement entered into by MCO Nominee One Limited. Besides, proceeds will also be used for general corporate purposes.
Nippon Life Insurance raised $1.32bn via a 30NC10 bond at a yield of 5.95%, ~11.25bp inside initial guidance of 6-6.125% area. The subordinated notes are rated A3/A-. Coupons are fixed until 16 April 2034, and if not called, reset then and every 5 years thereafter to the CMT 5Y plus the initial credit spread of 259bp and a coupon step-up of 100bps. Nippon Life will defer payment of all of the accrued interest if (a) a capital deficiency event has occurred and is continuing or (b) any payment or a liquidation parity security has been deferred and continues to be in deferral. If any payment has been deferred and continues to be in deferral, Nippon Life shall not make any principal or interest payment or repay, purchase or redeem any of the liquidation parity securities. The new bonds were priced 17bp wider to its existing subordinated 6.25% 2053s that yielded 5.78% at the time of pricing.
Far East Horizon raised $500mn via a 3Y bond at a yield of 6.5%, 35bp inside initial guidance of T+250bp area. Proceeds are intended to be used working capital and general corporate purposes. Subject to all necessary approvals, proceeds may also be on-lent to its subsidiaries in PRC by way of intercompany loan. The new bonds were priced 15bp wider to its existing 4.25% 2026s that yielded 6.35% at the time of pricing.
Jinan Hi-Tech Holding raised $180mn via a 3Y bond at a yield of 6.1%, 70bp inside initial guidance of 6.8% area. The senior unsecured notes are rated BBB by Fitch. Proceeds will be used to repay the issuer’s medium- and long-term offshore bonds due within one year, funding construction projects and general working capital.
Coupon step-up refers to a feature seen in certain bonds wherein the coupon increases (steps-up) either as per a predefined schedule or upon the occurrence of an event. Coupon step-ups can either be a single step-up or multiple step-ups through the life of the bond. A commonly seen step-up is for perpetual bonds, wherein the coupon increases in the event that the bond is not called on its first call date. However, not every bond’s coupon step-up happens if the bond i not called on its first call date, as it depends on the covenant structure of the bond.
On Exotic Corporate Debt Products Lure Yield-Hungry Indian Savers
Ajay Kejriwal, head of trading desk at Vivriti
“Investor appetite for bonds rated below AA has increased significantly… Elevated interest rates and changes in indexation benefit on debt mutual funds has accelerated development of alternate debt markets”
On Arb Traders See Slow Deal Revival Amid Rates, Antitrust Worries
Chris Colpitts, a merger-arbitrage specialist at TD Cowen
“Recently we seem to have had several deals that were close to being inked which fell apart last minute because of a bid-ask gap “
On Shocks in G20 emerging economies hit rich-world growth – IMF
“Since 2000, spillovers from domestic shocks in G20 emerging markets — particularly China — have increased and are now comparable in size to those from shocks in advanced economies”