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US Treasury yields were lower by 2-5bp across the curve on Wednesday. US Q3 GDP rose at an upwardly revised 5.2% annualized, the fastest in nearly two years, above estimates of 5.0%, and the preliminary 4.9% reading. However, the consumer spending component advanced at a less-robust rate of 3.6%, below estimates of 4.0%. Cleveland Fed President Loretta Mester suggested she would support another rate pause at the December FOMC meeting. Similarly, Atlanta Fed President Raphael Bostic was confident that inflation was on a downward path, echoing the sentiment from Fed speakers on Tuesday. Both Mester and Bostic however, are non-voting members this year. US credit markets saw IG CDS spreads tighten 0.1bp and HY tightening 0.1bp. US HY CDS spreads are now at its tightest levels since April 2022, touching 400bp. US IG CDS spreads are at levels seen two moths ago, at 63bp. Equity markets were slightly lower with the S&P and Nasdaq down 0.1-0.2%.
European equity markets were mixed. In credit markets, European main CDS spreads were tighter by 1.8bp and crossover spreads tightened by 10bp. Asian equity markets have opened flat today. Asia ex-Japan IG CDS spreads were tighter by 2.4bp.
ROP Sukuk Trust, a government entity of the Philippines, raised $1bn via a 5.5Y sukuk at a yield of 5.045%, 35bp inside initial guidance of T+115bp area. The senior unsecured bonds have expected ratings of Baa2/BBB+/BBB, and received orders over $3.8bn, 3.8x issue size. Fund/asset managers were allocated 60%, banks took 24% and the remainder was taken by central banks/official institutions/pension funds and insurers. Asia took 14%, the Middle East 30%, the US 19% and Europe 37%. Proceeds will be used for general purposes, including but not limited, to budgetary support. The new bonds were priced 3.5bp wider to its existing 3.75% bonds due 2029s that yield 5.01%.
Avic International Leasing, through their subsidiary Soar Wind, raised $187mn via a PerpNC3 bond at a yield of 6.125%, 52.5bp inside initial guidance of 6.65% area. The senior unsecured bonds have expected ratings of Baa1 (Moody’s), and received orders over $1.3bn, 7x issue size. Proceeds will be used for debt replacement. If the bonds are uncalled on its first call date in December 2026, the coupon will reset then and every three years thereafter at the US 3Y Treasury yield plus a spread of 471bps. Subsequently, the issuer has the option to call the bond every 6 months. The bond has a change of control put, which can be exercised at 101 before the first call date and at par thereafter. The bonds also have a dividend stopper and 6-month look-back distribution pusher, which can be exercised at the issuer’s discretion, on a cumulative and compounding basis.
Scotiabank raised $2bn via a two-tranche deal. It raised $1.15bn via a 3Y bond at a yield of 5.364%, 23bp inside initial guidance of T+120bp area. It also raised $850mn via a 10Y bond at a yield of 5.661%, 25bp inside initial guidance of T+165bp area. The new 3Y bonds were priced almost in-line with its existing 4.75% 2026s that yield 5.34%. The senior unsecured bonds have expected ratings of A2/A-/AA-. Proceeds will be used for general corporate purposes.
Macquarie raised $2.25bn via a three-part deal. It raised:
Both the 3Y tranches have expected ratings of A1/A+/A while the 11NC10 has an expected rating of A2/BBB+/A, as the 3Y tranches are issued at the OpCo level while the 11NC10 is issued at the HoldCo level.
Dividend pushers are a common covenant seen in perpetual bonds issued by both banks and corporates that require the issuer to make a coupon payment if it has paid a dividend on its shares. These covenants can be found in a bond’s prospectus or offering circular. Dividend pushers are included in a bond’s terms to provide confidence to bond investors that they would be paid coupons if the issuer’s stockholders are paid a dividend. Dividend pushers are sometimes used along with dividend stoppers, which prohibit issuers from paying a dividend on its stock if it has not made a coupon payment on its perpetual bonds.
On Risky Bonds Decimated By Credit Suisse Implosion Are Booming Again
Algebris CIO Sebastiano Pirro
“Everyone was wrong on the death of the AT1 market. In the end, Credit Suisse’s failure will likely make more money for our investors over five years than we would have otherwise, as we never thought we could get new issues from strong names at yields of more than 9%”
Andy Townsend, group treasurer of Close Brothers Group
“There was more momentum than any of us had expected… broad participation from the investment community”
On Wall Street Expecting European Stocks to Trail US Peers Again
JPMorgan strategist Mislav Matejka
“We believe that the risk-reward for equities will start fundamentally improving once the Federal Reserve is advanced with interest rate cuts, especially if that is happening without clear consumer and labor deterioration”
Bernstein Strategists
“We remain cautious amid this ‘higher for longer’ environment, and are cognizant of the fact that it takes time for the full effect of the rate hike cycle “
On Using Frozen Assets Could Damage Euro’s Reputation – ECB VP Luis de Guindos
“Our position on utilizing the dividends and interest from the frozen assets is clear… have to be careful because this could lead to reputational damage…. have to look beyond this conflict in isolation, and there could be implications for the euro as a safe currency”