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US Treasury yields softened again on Wednesday, down 4-8bp with Brent crude going below the $80/bbl mark and a mixed 10Y auction. The US Treasury’s $40bn auction for 10Y notes saw mixed metrics, with a high yield rate of 4.519% with analysts noting that the auction saw a slight tail. The bid-to-cover was at 2.45x, lower than the prior two months’ 2.50x and 2.56x. However, Will Compernolle, macro strategist at FHN Financial noted, “The bid-to-cover was lower than last month, but considering that the auction size was bigger, the cover was not that much weaker”. US credit markets saw IG CDS spreads tightening by 0.3bp and HY spreads widening by 1.5bp. S&P rose and Nasdaq rose 0.1% each.
European equity markets closed mixed. In credit markets, European main CDS spreads were tighter by 1.8bp and crossover spreads tightened by 5.6bp. Asian equity markets have opened flat today. Asia ex-Japan IG CDS spreads tightened by 5.5bp.
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Turkey raised $2.5bn via a 5Y sukuk at a yield of 8.509%, 36.6bp inside initial guidance of 8.875% area. The issuer is Hazine Mustesarligi and the senior unsecured bonds have expected ratings of B3/B (Moody’s/Fitch). It received orders over $6.5bn, 2.6x issue size. The last time it tapped the dollar bond market was in April, when it raised $2.5bn of green bonds, set to mature in 2030. At the time, the bonds offered a new issue premium of 56bps. An earlier $2.25bn issuance of a 6Y bond in March saw a new issue premium of 41bps. The newly issued 5Y sukuk offer a new issue premium of 40.9bp over its existing 9.875% 2028s that yield 8.1%. According to Bloomberg, Turkey also has plans to issue another Eurobond this year to help fund rebuilding efforts after a pair of earthquakes struck the country’s southeast, earlier in February.
Westpac raised $3.5bn via a four-part issuance. The details of the deal can be found in the table below:
While the rest of the tranche is senior unsecured, the 10Y fixed rate bonds are subordinated which explains why it is rated lower. Additionally, the 10Ys have a non-viability clause allowing the conversion of the notes into ordinary shares if there is a non-viability event as determined by the Australian Prudential Regulation Authority (APRA). The floating coupons for the 2Y FRN will reset at the overnight SOFR plus a spread of 72bps and will be paid quarterly. Proceeds will be used for general corporate purposes. The new 5Ys offer a new issue premium of 25.5bps over its existing 4.184% 2028s yielding 5.28%.
ADIB raised $500mn via a 5Y green sukuk at a yield of 5.695%, 30bp inside initial guidance of T+145bp area. The senior unsecured bonds have expected ratings of A+ (Fitch), and received orders over $2.2bn, 4.4x issue size. Banks were allocated 41%, private banks took 26%, fund managers took 17%, while the remainder was allocated to other financial institutions including insurance companies and hedge funds. Proceeds will be used to finance/refinance Eligible Sustainable Projects in line with ADIB’s Sustainable Finance Framework.
KHFC raised $500mn via a 3Y bond at a yield of 5.497%, 26bp inside initial guidance of T+105bp area. The senior unsecured bonds have expected ratings of Aa2/AA, and received orders over $900mn, 1.8x issue size. Central banks, official institutions and sovereigns, supranationals and agencies swept up 45% of the deal, fund and asset managers took 31%, bank treasuries 15%, and the remainder was taken up by insurers, pension funds and private banks. Asian investors accounted for 24%, EMEA 18% and the US 58%. Proceeds will be used for general corporate purposes.
Dah Sing Bank raised $250mn via a 10NC5 Tier 2 bond at a yield of 7.518%, 30bp inside initial guidance of T+325bp area. The bonds have expected ratings of Baa1/BBB- (Moody’s/Fitch). The bonds also have a non-viability loss absorption clause allowing a permanent write-off (in whole or in part) of the bond’s interest and/or principal should there be a non-viability event, as determined by the Hong Kong Resolution Authority. Proceeds will be used for general banking and other corporate purposes.
Auction tails and stop throughs are metrics that can help in understanding whether the auction was well bid or not and is to be seen with the bid-cover ratios and other metrics. These are particularly observed in Treasury securities auctions. An auction tail occurs when the final yield/high yield of the bond auctioned is higher than the when-issued yield (WI yield) and can indicate that demand was not strong enough even though bid-cover might have been strong. On the other hand, a stop through occurs when the final yield is lower than the when-issued yield (WI yield) and can indicate that demand was particularly strong for that bond.
On Indonesia’s Bonds No Longer Darlings in Emerging Markets
Desmond Soon, a portfolio manager at Western Asset Management
“LatAm countries are sort of high octane, high yield and Asia is more mezzanine”
Carol Lye, PM at Brandywine Global
“On a real yield spectrum, Indonesia does well on its own — but it’s when you compare it to the rest of the markets that it doesn’t shine as bright”
On Bond Sales Becoming a Bigger Deal for Stocks Than US Jobs Data
David Neuhauser, founder and CIO of hedge fund Livermore Partners
“A lot of the long-duration assets out there within equities have been doing really well as of late because the thinking is the Fed is done and they’re going to wait and see and then start cutting”
On US 30Y mortgage rate plunging by most in nearly 16 months
Althea Spinozzi, a fixed-income strategist at Saxo Bank
“We have seen that whenever an auction tailed in the past few weeks, the market followed, selling US Treasuries”
Pooja Kumra, a rates strategist at TD Bank
“But if we see some stream of softer growth data, market focus will return to Fed policy cuts, which is positive for US Treasuries”