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US Treasury yields eased on Tuesday by 3-5bp across the curve. Three Fed speakers came out noting easing inflation amid a resilient economy. Cleveland Fed President Loretta Mester said that policymakers will probably gain confidence to cut interest rates “later this year” if the economy evolves as expected with inflation easing. Minneapolis Fed President Neel Kashkari said that inflation had improved by easing, but indicated that more progress was required. Philadelphia Fed President Patrick Harker noted that the economy is on the path to approaching a soft landing thanks to falling inflation whilst having a strong labor market. Looking at credit markets, US IG and HY CDS spreads widened 0.5bp and 0.7bp respectively. Equity markets saw the S&P and Nasdaq rise 0.2% and 0.1% respectively.
European equity markets ended higher. Credit markets in the region saw the European main CDS spreads tighten by 0.3bp and crossover spreads widened by 0.1bp. Asian equity markets have opened in the green today. Asia ex-Japan IG CDS spreads tightened by 1.1bp.
HDFC Bank raised $750mn via a two-part deal. It raised $300mn via a 3Y sustainability bond at a yield of 5.196%, 30bp inside initial guidance of T+125bp area. It also raised $450mn via a 5Y bond at a yield of 5.18%, 22bp inside initial guidance of T+140bp area. The senior unsecured bonds are rated Baa3/BBB-. Proceeds from the 3Y sustainability bond will be used under its sustainable finance framework. Proceeds from the 5Y note will be used for funding requirements of its foreign branches/subsidiaries from time to time, to develop and expand business in foreign offices, and to meet general corporate purposes.
Bahrain raised $2bn via a two-part deal. It raised $1bn via a 7Y sukuk at a yield of 6%, a strong 62.5bp inside initial guidance of 6.625% area. It also raised $1bn via 12Y bond at a yield of 7.5%, a solid 50bp inside initial guidance of 8% area. The notes are rated B+/B+ (S&P/Fitch). CBB International Sukuk Programme Co is the issuer of the 7Y sukuk while Bahrain Government International Bond (BHRAIN) is the issuer of the 12Y. The new 7Y sukuk was priced 87bp tighter to its existing 5.625% bonds due 2031 that currently yield 6.87%.
Saudi Electricity raised $2.2bn via a two-part deal. It raised $800mn via a 5Y sukuk at a yield of 4.942%, 40bp inside initial guidance of T+130bp area. It also raised $1.4bn via a 10Y bond at a yield of 5.194%, 45bp inside initial guidance of T+145bp area. The senior unsecured notes are rated A1/A. Proceeds will be used for general corporate purposes.
Citigroup raised $5.5bn via a two-part deal. It raised $3bn via a 6NC5 senior unsecured bond at a yield of 5.174%, 25bp inside initial guidance of T+140bp area. It also raised $2.5bn via a 11NC10 subordinated note at a yield of 5.827%, 15bp inside initial guidance of T+190bp area. The senior unsecured 6NC5s are rated A3/BBB+/A and the subordinated 11NC10s are rated Baa2/BBB/BBB+.
Korea Development Bank (KDB) raised $bn via a two-tranche deal. It raised $1.75bn via a 3Y bond at a yield of 4.683%, 3bp inside initial guidance of SOFR MS+69bp area. It also raised $1.25bn via a 2Y bond at a yield of 4.596%, 3bp inside initial guidance of SOFR MS+81bp area. The senior unsecured notes are rated Aa2/AA/AA-.
Risk Weighted Assets (RWA) is a calculation used in banking that helps determine the minimum amount of capital (capital adequacy ratio) that a bank should keep as reserves against unexpected losses arising out of its assets turning sour or insolvency/bankruptcy. Riskier assets like unsecured loans, high yield securities etc. that carry a higher risk of default are given a higher risk weightage and safer assets like Treasuries are given a lower weightage since high risk assets require higher capital adequacy ratios (CAR).The minimum capital requirements as a percentage of RWAs are set by regulatory agencies with banks required to keep a minimum of 10.5% of RWA as Tier 1 and Tier 2 capital under Basel III.
On Turkey Lira Bets Showing Central Bank Expected to Stay Hawkish
Alp Serbetli, head of Treasury at ICBC Turkey Securities
Moves reflect “bets for a tighter monetary stance via either higher rates or tighter liquidity conditions, or both… Inflation is stubbornly sticky”
On Pimco Sees Multiple BOJ Rate Hikes Starting as Soon as March
Stephen Chang, fund manager at Pimco
“It’s likely going to be a two-shot type of move to get to 0.25%”… increase may be in 10 basis-point, and then 15 basis-point increments… favors going underweight Japanese duration.
On JPMorgan Traders Saying to Buy US Stocks
“That mea culpa aside, what has changed? Megacap tech earnings whose stocks prices are in the process of de-coupling from bond yields… macro story continues to reveal an economy that keeps pace at an above-trend pace ”