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US Treasury yields pulled back by 11bp after breaching the 5%-mark intraday, to touch 5.02%, the highest since 2007. Analysts noted that the volatility in treasuries were fueled by expectations that the Fed will keep rates elevated and the US Treasury will boost bond supply to cover widening deficits. The US budget deficit stood at $1.7tn in fiscal 2023, the largest since the pandemic induced $2.78tn deficit seen in 2021. The deficit jumped from 5.4% of GDP in 2022 to 6.3% currently. US credit markets saw IG CDS spreads tighten 1.9bp and HY spreads tighter by 8.6bp. US equity indices were mixed as the S&P closed 0.2% lower while Nasdaq was higher by 0.3%.
European equity markets were broadly steady. In credit markets, European main CDS spreads were tighter by 2.2bp and crossover spreads tightened 9bp. Asian equity markets have opened in the green today. Asia ex-Japan IG CDS spreads widened 1.5bp.
Tuan Sing raised S$150mn via a 4NC3 bond at a yield of 7.5%. The senior unsecured bonds are unrated. Proceeds will be used to finance the tender offer for its existing 2024 notes, property development and refinancing, as well as for general corporate purposes. The issuer is offering to buy back its outstanding S$141.75mn 6.9% bonds due 18 October 2024 at 102% of principal. The tender offer ends on October 31, and holders who subscribe to the new note will be given priority. Private banks were also offered a 25-cent concession for this new issue.
Target date ETFs are a type of exchange traded fund that invests in stocks and bonds wherein the focus is towards the retirement age of individuals. Here, the investment managers gradually guide the portfolio toward its target retirement date by shifting from a more risky to a conservative profile to optimize risk through the years. Thus, they reduce risk over time via adjustments to the mix of the two asset classes. At first, the investor must determine the age at which he/she plans to retire and begin taking money out of their retirement investments. Then they the select the fund that matches closest to their retirement year and begin investing for retirement.
While target-date mutual funds are more common, BlackRock is said to be reviving target-date ETFs, a decade after its first attempt to venture into this space.
On Covering Short Bet on US Treasuries – Pershing Square’s Bill Ackman
“The economy is slowing faster than recent data suggests… too much risk in the world to remain short bonds at current long-term rates… you’re not being paid enough to enter into a 30-year contract with the US government at a fixed price”
On UST 10Y Yield Breaching 5% for First Time Since 2007
Tom Tzitzouris, head of fixed income research at Strategas Research Partners
“Yields are rising because we are finally seeing supply come in”
Strategists at TD Securities
“While levels look attractive in the near term, investors are likely to continue waiting for catalysts rather than catching the falling knife amid technical weakness… could keep rate volatility extremely high in the near-term.”
On Investors Finding Value in Seemingly Valueless Convertible Bonds
Joe Wysocki, senior co-PM at Calamos Financial Services
“The return profile has changed a little bit. They’re more of a bond-like component, but those can be tactical opportunities for investors”
Richard Duffield, head of equity-linked capital markets at Citigroup
“By definition, anything that you are refinancing now has a higher interest cost. And if you’re refinancing a convertible, it’s likely to have a lower conversion price”
On Investors taking to fixed income ETFs despite rout
Ben Seager-Scott, head of multi-asset funds at Evelyn Partners
“There’s a lot of interest in fixed income ETFs at the moment, given they are a great way to get easy access to an asset class that is becoming ever more attractive in yield on offer”
Brett Pybus, global co-head of iShares fixed income ETFs for BlackRock
“I think we are at the early stages of a reallocation to fixed income… average increase of 10% in fixed income allocations across client portfolios in Europe, ME&A”
Antoine Lesne, an MD at State Street
“The sell-off since the summer wrongfooted many investors… investors (with a longer horizon), these levels may have still been attractive”