This site uses cookies to provide you with a great user experience. By using BondbloX, you accept our use of cookies.
US Treasury yields jumped higher with the 5Y and 10Y yields up 10bp each. US Headline CPI for July 2023 came at 3.2%, lower than expectations of 3.3% and higher than the previous month’s 3%. Core CPI was at 4.7%, in-line with expectations of 4.7% and lower than the previous month’s 4.8%. While the inflation readings were mixed, San Francisco President Mary Daly (non-voting) told Yahoo! Finance that the central bank still has “more work to do” to combat rising prices. Her comments, as well as a weak auction of the US 30Y Treasury, weighed on Treasuries. US IG credit spreads were tighter by 0.5bp and HY CDS spreads tightened by 2.6bp. The S&P and Nasdaq were marginally higher by ~0.1%.
European equity markets ended higher. In credit markets, European main CDS spreads were 2.3bp tighter and Crossover CDS tightened 10.9bp. Asia ex-Japan CDS spreads widened 1.5bp. Asian equity markets have opened mixed this morning.
Linyi City Construction raised $310mn via a 3Y bond at a yield of 7.4%, 20bp inside initial guidance of 7.6% area. The senior unsecured bonds have expected ratings of Baa3 (Moody’s). Proceeds will be used for refinancing its existing offshore debt, project development and replenishing working capital.
SEB Group raised €500mn via a 10NC5 Tier 2 bond at a yield of 5.108%, 20bp inside initial guidance of MS+210bp area. The bonds have expected ratings of Baa1/BBB+/A, and received orders over €1bn, 2x issue size.
Celanese raised $3bn via a three-tranche deal. It raised
The senior unsecured bonds have expected ratings of Baa3/BBB-/BBB-. Proceeds will be used to repay its outstanding debt, for general corporate purposes and to fund its recently announced tender offer. The tender offer is for its outstanding 5.9% 2024s, 6.05% 2025s and 3.5% 2024s, up to a maximum of $1.75bn, in this order of priority. Bondholders who tender the notes before 23 August 2023 (Early Tender Deadline) will receive $30 per $1,000 in principal.
Dividend stopper is a common covenant seen in perpetual bond structures that requires the bond issuer to not pay a dividend, if it decides to stop coupon payments on the perpetual bonds. Some contingent convertible (CoCo) perpetual bonds have a clause that allows the issuer to skip a coupon payment at their discretion, if the financial situation of the issuer is stressed. In such cases, a dividend stopper covenant is beneficial to the CoCo bondholders as it restricts the issuer from paying dividends on its equity in times when it has not paid coupon to its CoCo bondholders. This is why the presence (or absence) of a dividend stopper covenant is seen as the determining factor on whether the CoCo perpetual bonds are not (or are) subordinated to its equity.
On Credit Market being the ‘Next Shoe to Drop’
Anne Walsh, CIO of Guggenheim Partners Investment Management
“I don’t think the market is really pricing in the next shoe to drop, and that’s credit. Recession seems to be off everybody’s mind, but I think that’s probably a mistake at this point in time. I think it’s a really good time to be defensive and thoughtful and wait for the next opportunity set. Higher quality credit is less of a concern. Yields over 5.5% on investment grade bonds are “attractive,” and the spread widening that happens in recessions is not likely to have a big impact on that space.”
On Fed Pause after tame CPI data
Mary Daly, President of Federal Reserve Bank of San Francisco
“The data came in largely as expected, and that is good news. It is not a data point that says victory is ours. There’s still more work to do. And the Fed is fully committed to resolutely bringing inflation back down to its 2% target.”
On weak demand for US 30Y treasuries
Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities
“It’s a case of refunding digestion, and with shorter-dated Treasury yields higher, you are getting paid to keep duration short. The sale also reflects weak summer liquidity.”
On bond markets being better-priced than equities
David Kelly, JPMorgan Strategist
“The bond market overall is better priced than it’s been for many, many years and I think there’s a one-time capital gain there as rates come down. There are better long-term capital gains to be made still in the equity market.”