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US Treasury yields jumped across the curve yesterday, triggered by strong new-home sales data that accelerated in September, coupled with a weak auction of the 5Y note. The 5Y and 10Y yields jumped 11bp and 15bp respectively. New home sales rebounded 12.3% to a seasonally adjusted annual rate (SAAR) of 759k units last month. This was much higher than August’s upwardly adjusted 676k, and estimates of 680k. The US Treasury’s 5Y note auction tailed by 2bp at a high yield of 4.899%, suggesting that investors demanded a yield premium to buy the note. The bid-to-cover ratio came in at 2.36x, lower than the 2.52x previously and the three-month average of 2.55x. US credit markets saw IG CDS spreads widen 3.4bp and HY spreads wider by 14.3bp. S&P fell 1.4%, while Nasdaq saw its worst drop of 2023, falling 2.4% with Alphabet’s shares down 9.5% on disappointing cloud figures, as per analysts.
European equity markets were mixed. In credit markets, European main CDS spreads were wider by 1.6bp and crossover spreads widened 7.3bp. Asian equity markets have opened in the red today, following global bourses. Asia ex-Japan IG CDS spreads widened 1.5bp.
Mamoura raised $750mn via a 10.5Y green bond at a yield of 6.031%, 40bp inside initial guidance of T+150bp area. The senior unsecured bonds have expected ratings of Aa2/AA (Moody’s/Fitch), and received orders over $6.5bn, 8.7x issue size. Proceeds will be applied in accordance with the Mubadala Investment Company’s Green Finance Framework.
Moody’s upgrades Beazer’s corporate family rating to B1; outlook stable
Air Methods Corp. Downgraded To ‘D’ On Chapter 11 Filing
Bid-to-cover is a ratio of the number of bids or orders received for a particular security issuance vs. the amount issued. The bid-to-cover ratio indicates the demand for an issuance – higher the ratio, higher the demand and lower the ratio, lower the demand.
On Bond Markets’ Spotlight on Fed’s QT
Jack McIntyre, portfolio manager at Brandywine Global
“They can change that very quickly if they need to — if the bond vigilantes continue to send a message. Supply is important right now, and it’s supply during QT and that’s the interesting thing”
Bill Dudley, Former NY Fed President William Dudley
“A lot of people in the market are saying ‘when will the Fed stop QT?’ — Not any time soon”
Josh Frost, the assistant secretary for financial markets at the US Treasury
“Further gradual increases in coupon auctions sizes will likely be necessary in future quarters”
On ‘Dangerous’ Effects of Yields at 5% – BofA’s Head of Global Markets, Jim DeMare
“That’s dangerous because that’s going to prevent capital from flowing to innovative industries, innovative companies”… short-term yields at 5% force people “not to make decisions” as they’re comfortable with those levels of return.
On US Rates Need to Drop on Debt Costs – Starwood Capital Group CEO, Barry Sternlicht
“Rates will come down in the United States because they’ll have to come down… biggest victim of the Fed increasing rates is actually the federal government who now has to pay 5% on $33tn worth of debt
On Banks Putting Bond-Sale Spree on Pause as Market Volatility Ramps Up
Winnie Cisar, global head of strategy at CreditSights
““With earnings season underway, the Fed meeting looming and Treasury refunding at the top of mind, the pace of investment-grade supply is likely to remain subdued until the market clears those hurdles”
Collin Martin, fixed-income strategist at Charles Schwab
“The high-yield environment we’re in right now isn’t going to prevent banks from issuing”