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Volatility in US Treasury yields continued on Thursday. 2Y yields fell 6bp to 5.08% and the 10Y was down 2bp to 4.59%. The final print of US GDP in the third quarter came at an unrevised 2.1%, indicating continued resilience in the economy. Initial jobless claims for the prior week dropped to 204k vs. the forecasted 215k rise. However, the manufacturing sector stayed relatively weak with the Kansas Fed Manufacturing Index at -8 as compared to the expected -2 print. The peak fed funds rate fell 3bp to 5.43%. In credit markets, US IG CDS spreads were 1bp tighter while HY spreads tightened 10.3bp. The S&P and Nasdaq moved higher by 0.6-0.8%.
European equity markets ended higher by over 0.5%. In credit markets, European main CDS spreads were tighter by 2.2bp and crossover spreads tightened 3.3bp. Asian equity markets have opened mixed this morning. Asia ex-Japan CDS spreads were 0.1bp tighter.
Changde Urban Construction raised $100mn via a 3Y bond at a yield of 5.9%, 20bp inside initial guidance of 6.1% area. The bonds have a change of control put at 100. The senior unsecured bonds have expected ratings of A+ (Fitch) and are supported by a letter of credit from Postal Savings Bank Of China, Changde branch. Proceeds will be used for the repayment of the Issuer’s medium to long term offshore debt due within one year.
Standby Letter of Credit (SBLC) is a note issued by the buyer’s bank to the seller’s bank, where the former guarantees to pay a sum of money to the latter if the buyer defaults on the agreement. Particularly in the shipping of goods, SBLCs are used to reduce risks associated with the transaction on unforeseen events leading to a default. Bonds backed by the above structure are called SBLC-Backed Bonds. Unlike guarantees, which are direct obligations of a bank to cover the timely payment of related bonds, SBLCs require trustees of the bonds to provide demand notices to the banks in the event that issuers fail to make bond payments.
On T. Rowe Shorting Treasuries as Yields Risk Climbing to 5.5% on Fed
“One thing we typically see in a cycle is that the 10 year and the terminal rate for the Fed typically get pretty close to one another. And obviously the terminal rate’s going to be at least five and a half, whether or not they hike again in November”… 10-year yields are “not sufficiently restrictive enough to slow inflation.
On Long-Bond Yield’s Biggest Jump Since 2009
Thierry Wizman, interest-rate strategist at Macquarie Futures
“We could see something break when you see this kind of volatility”
Jack McIntyre, PM at Brandywine Global
“One characteristic of this bear market in bonds is that there hasn’t yet been a major, negative feedback as a result of those higher yields”
Marko Kolanovic, chief market strategist at JPMorgan Chase
“Core risk for markets and the economy is tied to the interest-rate shock of the past 18 months. History doesn’t repeat, but it rhymes with 2008.”
On Banks Vying for $50bn Bond Market Left by Credit Suisse
Markus Thoeny, a fixed-income portfolio manager at Lombard Odier
“We have indeed seen a lot of new issuance year-on-year and in that sense the collapse of Credit Suisse has not had any impact on the primary market so far”
Damien Aellen, head of Swiss syndicate for BNP Paribas
“The Swiss franc bond has been coming out of 10 years of deeply negative rates… Issuers have always been looking for diversification there but now there’s also competitive funding”
On Struggling Corporate Borrowers Turning to Private Credit to Defer Interest
Chris Wright, head of private markets at Crescent Capital
“Banks won’t underwrite this stuff… It’s going into the hands of private credit.”
Michael Small, Partner at Churchill Asset Management
“There are size constraints, and not every capital structure can sustain junior capital – we find large, leading companies in defensive sectors most attractive”