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US Treasury yields moved lower by 7-9bp across the curve yesterday. US Q4 GDP grew much higher than expected at 3.3% annualized, much higher than expectations of 2%. Its GDP for 2023 also grew, at 2.5% vs 1.9% the previous year. Durable goods orders were flat in December vs. forecasts for a 1.5% rise in orders. Also, initial jobless claims rose 25k last week to 214k, above estimates of 200k. Looking at credit markets, US IG CDS spreads tightened 1.3bp while HY spreads were 7bp tighter. Equity markets saw the S&P and Nasdaq rise 0.5% and 0.2% respectively.
European equity markets ended higher too. Credit markets in the region saw the European main CDS spreads tighten by 0.8bp and crossover spreads tighten by 4bp. Asian equity markets have opened lower today. Asia ex-Japan IG CDS spreads tightened by 0.1bp.
Shaoxing Shangyu raised $300mn via a 3Y sustainability bond at a yield of 5.60%, 45bp inside initial guidance of 6.05% area. The senior unsecured bonds are rated BBB-. The bonds have a change of control put at 101. Proceeds will be used to refinance existing debt and to finance/refinance new or existing eligible projects in accordance with its sustainability finance framework.
China Orient Asset Management raised $550mn via a 3Y bond at a yield of 5.745%, 35bp inside initial guidance of T+190bp area. The senior unsecured bonds are rated BBB/A-. The issuer is Joy Treasure Assets Holdings Inc, and China Orient Asset Management International Holding Ltd. is the guarantor. The bonds have a change of control put at 101, and proceeds will be used for repayment of the group’s existing offshore debt. The new bonds are priced 11.5bp tighter to its existing 4.375% 2027s that yield 5.86%.
Quantitative easing (QE) is a form of unconventional monetary policy whereby a central bank purchases assets such as existing government bonds so as to pump money directly into the economy. This increase in money supply is meant to encourage financial institutions to lend more money to businesses and individuals. QE is regarded as a last resort to stimulate spending in an economy when a reduction in interest rates do not work alone. It also bears with it the risk of creating an inflationary pressure in the economy. Most major central banks in the world such as the US Fed, Bank of England, Bank of Japan and the ECB are all undertook QE measures in a bid to help their respective economies fight the negative impact of the pandemic.
Credit Traders Are Using Default Swaps to Hedge Their Bets on Interest Rates
Nicolas Trindade, Senior PM at AXA
“The market can be exuberant… Central bankers are trying to push back but the market is not listening. The only time the market is going to listen is when we get data, not central bank speakers”
BlueBay CIO, Mark Dowding
“We remain modestly constructive for now and happy to add cash corporate risk in attractive new issues, while adding index hedges on the other side”
On Borrowing From Fed Emergency Tool Likely Jumped Before Rate Hike
Lou Crandall, chief economist at Wrightson ICAP
“Our assumption is that new borrowing will fall essentially to zero in the new statement week beginning today… the change in lending terms clearly suggests that the runoff from the Fed’s balance sheet will be faster than we had previously assumed”
On China’s market stabilising measures ‘steps in the right direction’ to end slump – Abrdn
“They have been very clear that they want to restore confidence in the financial markets… The government has been quite consistent on this… valuations are very attractive. In the longer run, there is definitely upside potential for the markets.”
On Vanguard’s Credit Chief Sees Second-Half Recession Hitting Corporate Debt
“We can see credit perform OK — not extraordinary outperformance — in the first half… look beyond that, our concerns begin to grow… Where we would see vulnerabilities are in A rated industrial credits that have the capacity to lever up. Valuations are quite poor”