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US Treasury yields took a pause on Thursday, easing across the curve. The 2Y fell by 7bp to 4.92% while the 10Y eased 3bp to 4.25%. The 30Y briefly touched 4.422%, the highest level since 2011 before closing at 4.37%, down 1bp. Over the past month, longer-dated Treasuries, i.e.,10Y and beyond have risen by 40-50bp as markets starts to bake in expectations of “higher for longer” interest rates on the back of strong US economic data. US IG credit spreads were wider by 1.4bp and HY CDS spreads widened by 8.7bp. The S&P and Nasdaq closed lower by ~0.8% and ~1.2%, respectively.
European equity markets ended lower. In credit markets, European main CDS spreads were 2.3bp wider and Crossover CDS widened 9.3bp. Asia ex-Japan CDS spreads continued to widen, closing at 131.3bp while Asian equity markets have opened broadly weaker this morning. The Chinese yuan slid to its lowest levels since 2007 as a result of weakening economic conditions and possible contagion effects from troubled real estate sector.
Continuum Green raised $450mn via a 3.5NC1.5 Green bond at a yield of 9.5%, 12.5bp inside initial guidance of 9.625% area. The bonds have expected ratings of B+/B+. Proceeds will be used: (i) to redeem outstanding $400m senior secured notes due 2026, (ii) to pay interest on the first interest payment date of the notes and transaction costs, (iii) for development expenditure for eligible green projects, and (iv) for general corporate purposes. The new senior secured notes are issued by Continuum Energy Aura Pte and guaranteed by Continuum Green Energy Ltd. The bonds have a leverage covenant for the issuer to maintain a ratio debt of consolidated net leverage of less than or equal to 6.5x. The deal by the India-focused renewable energy firm is the first major high yield dollar bond in Asia in four months. The new bonds are priced 252bp wider compared to Continuum Energy Levante’s higher-rated (Ba2/BB+) 4.5% 2027s callable in 2024s, that currently yield 6.98%.
Chapter 15 is a legal bankruptcy filing where a foreign debtor files for bankruptcy in US courts. In general Chapter 15 bankruptcy is an ancillary case to a primary proceeding brought in another country, typically the debtor’s home country. As an alternative, the debtor may commence a complete Chapter 7 or Chapter 11 bankruptcy case in the US provided its assets in the US are sufficiently complex to warrant a full-blown domestic bankruptcy case. Bloomberg notes that non-US based companies that are in financial jeopardy tend to file for Chapter 15 bankruptcy to ensure that they will not be sued by creditors in the US or have assets seized there. Chapter 15 gives foreign creditors the right to participate in US bankruptcy cases and prohibits discrimination against foreign creditors.
On the Recent Rise in Treasury Yields
Sebastian Mullins, Australian Head of Multi-Asset at Schroder Investment Management
“You have this money illusion because things cost more, people are spending more. But in real terms, things are falling behind. We’re starting to see some small cracks in the labor market, but the consumer is pretty much the key to whether or not the US rolls over. So we’re watching that pretty tightly.”
On Preference For Shorter Dated Bonds Amidst Global Turmoil
Saurabh Sud, Senior Portfolio Manager at T. Rowe Price
“We are finding opportunities in short-dated paper like both investment grade and high yield or securitised, where you can still generate high single digit or double digit yields, without taking a lot of credit or duration risk.”
On Increasing Emerging Markets Credit Risk
Richard Segal, a fixed-income analyst at Ambrosia Capital Ltd.
“While there is scope in selected emerging markets for some easing to occur, there isn’t much scope otherwise. Inflation has declined but remains well above central-bank targets and gross-domestic-product growth will be above zero in the important countries.”
On US Mortgage Rising to Highest Levels Since 2002
Sam Khater, Freddie Mac’s chief economist
“Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”
Venezuela Creditors Back Legal Extension for Defaulted Bonds
Zhongzhi, China’s troubled US$137 billion shadow bank, plans debt restructuring, hires KPMG