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US Treasury yields continued to soar, led by long-end yields. The 10Y yield rose 11bp to 4.95% and the 30Y was up 10bp, crossing the 5%-mark, the highest since 2007. Fed Governors Christopher Waller and Michelle Bowman spoke yesterday with the former noting that it is “too soon” to tell whether more rate hikes are needed while the latter said that the Fed could hold the policy rate steady currently. US credit markets saw IG CDS spreads widen 2.8bp and HY spreads wider by 16.2bp. The S&P ended 1.3% lower and Nasdaq was down 1.6%.
European equity markets closed lower too. In credit markets, European main CDS spreads were wider by 2.1bp and crossover spreads widened 10.2bp. Asian equity markets have opened in the red this morning and Asia ex-Japan IG CDS spreads widened 3.2bp.
MUFG raised $750mn via a PerpNC5.25 AT1 bond at a yield of 8.2%, 67.5bp inside initial guidance of 8.875% area. The subordinated notes are rated Baa3/BB+/BB+. The coupons are fixed until the first reset date of 15 January 2029 and if not called, it will reset every five years at the US 5Y Treasury yield plus a spread of 329.4bp. The principal write-down would be temporary if the issuer’s consolidated CET1 ratio is less than 5.125% and it would be permanent upon the occurrence of a non-viability event (PONV) or bankruptcy event. Proceeds will be used to fund the operations of MUFG Bank Ltd. through a perpetual subordinated loan intended to qualify as its AT1 capital and internal TLAC.
ICBC raised ~$1.82bn via a multi-currency three-tranche issuance from three of its branches. It raised:
The bonds are rated A1 (Moody’s). Proceeds will be used to finance and/or refinance eligible green assets as defined in its Green Bond Framework.
Goldman Sachs raised $4bn via a two-tranche deal. It raised:
The senior unsecured bonds have expected ratings of A2/BBB+/A. Proceeds will be used for general corporate purposes.
BNY Mellon raised $2bn via a two-tranche deal. It raised:
The bonds are unrated. Proceeds will be used for general corporate purposes.
Jinan Lixia Holdings raised $300mn via a 3Y bond at a yield of 7.3%, 40bp inside initial guidance of 7.7% area. The senior unsecured bonds are unrated. Proceeds will be used to repay the principal on its medium and long-term offshore bonds due December 2023 to refinance the Eligible Green Projects.
Qingdao Conson raised $210mn via a 3Y sustainability bond at a yield of 7%, 60bp inside initial guidance of 7.6% area. The senior unsecured notes are unrated. The bonds have a change of control put at 101.Proceeds will be used for refinancing existing offshore debt in accordance with its sustainable finance framework. Qingdao Conson Development Group Co Ltd. is a keepwell provider for the notes.
Sotheby’s Downgraded To ‘B’ On Tightening Margins And Elevated Leverage; Outlook Negative
Moody’s downgrades Guangzhou Development District Holding to Baa2; outlook remains negative
A keepwell provision is a legal agreement between a parent company and a subsidiary to ensure solvency and financial stability of the subsidiary for the duration of the agreement. Keepwell provisions are included in bond terms to offer bondholders confidence on the issuer’s ability to repay. The keepwell structure emerged around 2012-2013 to assuage concerns of investors over a bond issuer’s creditworthiness. However, it is important for investors to understand that keepwells are not a guarantee that the parent company will support the subsidiary in the event of a default, and there has previously been no precedent on the enforcement of keepwell structures.
On ‘Too Soon to Tell’ If More Interest Rate Hikes Needed
Fed Governor Christopher Waller
“I believe we can wait, watch and see how the economy evolves before making definitive moves on the path of the policy rate… looking carefully at the data… As of today, it is too soon to tell”
Fed Governor Michelle Bowman
“Inflation has come down, but we know that it is still too high… I believe we can hold the policy rate steady and let the economy evolve in the desired manner… can’t avoid thinking about the second scenario, where demand and economic activity continue at their recent pace”
On Wall Street Dealmakers Tired of Guessing When Comeback Will Arrive
Citigroup CEO Jane Fraser
“Sitting here today, it remains hard to predict when deal activity will sustainably rebound”
Morgan Stanley CEO, James Gorman
“The minute you see the Fed indicate they’ve stopped raising rates, the M&A and underwriting calendar will explode”
On 60/40 Portfolio Far From Dead, Set to Trounce Cash – JPMorgan
60/40 set to outperform cash by an annualized 4.1%, and inflation by 4.5%, over the next 10 years… “While high cash rates appear compelling, investors should remember that sitting in Treasury bills might mean collecting 5% for limited risk today, but it misses out on compounding of returns over the longer run”
On Stocks, Credit Starting to Shake Off Treasury Turmoil – BofA
“It’s a balancing act. And it looks like the balance shifted toward slightly less negative… This reaction has diminished a little bit recently which is good, but should the sell off in rates accelerate this could change. There is a lot of uncertainty on where rates are going”