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US Treasury yields were marginally lower across the curve, down by 1-3bp. The US Headline PCE for January rose 2.4% YoY, lower than the 2.6% seen a month prior and in-line with estimates. The Core PCE Index came in at 2.8%, lower than 2.9% in December and in-line with estimates. Initial jobless claims for the week ended February 24 came at 215k, up 13k over the previous week and more than the 210k estimate. Looking at credit markets, US IG CDS spreads tightened 0.8bp and HY CDS spreads were 3bp tighter. Equity markets closed higher with the S&P and Nasdaq up 0.5% and 0.9% respectively.
European equity markets ended mixed. Credit markets in the region saw the European main CDS spreads tighten 0.4bp and crossover spreads tighten by 2.8bp. Inflation in Germany, France and Spain eased further in February. German CPI fell to 2.5%, the lowest reading since June 2021 and in France, it slowed to 2.9% from 3.1% priorly. In Spain, annual inflation cooled to 2.8% from 3.4%. Asian equity markets have opened in the green today. Asia ex-Japan IG CDS spreads were 0.2bp tighter.
IRB Infra raised $540mn via an 8Y bond at a yield of 7.125%, 37.5bp inside initial guidance of 7.5% area. The senior unsecured are rated Ba2/BB+ (Moody’s/Fitch). The bonds have a change of control at 101, and a make whole call at 10 March 2027. Proceeds will be used to repay existing INR-denominated debt that was availed for capex. The bond has a weighted average tenor 7.25Y. A change of control event would occur if (a) the promoters are beneficial owners of less than 26% of the voting power of voting stock or (b) the company ceases to own 26% of Private InvIT or (c) on the adoption of plan relating to liquidation or dissolution of company. The bond’s covenants require a proportionate project leverage coverage ratio greater than 1.8x and a gross leverage less than 4x. Other covenant provisions include restricted payments, tax event, equity clawback and optional redemptions. The call schedule one the notes is as follows (a) between 11 March 2027 to 10 March 2028 at par+75% of coupon (b) between 11 March 2028 to 10 March 2029 at par+50% of coupon (c) between 11 March 2029 to 10 March 2031 at par+25% of coupon (d) at or after 11 March 2031 at par.
Moody’s downgrades Herbalife’s CFR to B1; outlook negative
Equity clawback is a feature of a bond that allows the issuer to refinance a certain amount of the outstanding bonds with proceeds from an equity offering. These equity offerings could be either initial or follow-on public offerings.
On Magnificent Seven a ‘bit frothy’ – Bridgewater founder Ray Dalio
“Bit frothy but not in a full-on bubble”… Alphabet and Meta Platforms still “somewhat cheap” and Tesla “somewhat expensive”… “Our readings suggest that, while equities may have rallied meaningfully, we’re unlikely to be in a bubble”
On South Africa Rand Bonds Pitting Goldman Sachs View Against JPMorgan
Manik Narain, head of EM Strategy at UBS
“Await better levels to buy local debt, FX hedged… recommends waiting for a 9.25% yield on rand debt due in 2026 and 10.5% on securities maturing in the 2030s.
On Fed policymakers looking past ‘bumpy’ inflation toward rate cuts
Atlanta Fed President Raphael Bostic
“I expect things are going to be bumpy”
Cleveland Fed President Loretta Mester
“Right now, that feels about right to me if the economy evolves as I anticipate it will (on 3 rate cuts as a baseline”
Chicago Fed President Austan Goolsbee
“Rates are pretty restrictive… question is, how long to remain this restrictive”