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US Treasury yields climbed higher, continuing the move seen on Friday, with the 10Y yield up 7bp. US ISM Services PMI increased to 53.4 last month from 50.5 in December. The group’s metric of prices paid jumped 7.3 points, the most since 2012, to 64, and is also its highest print since February 2023. The New Orders Index rose to a three-month high of 55, above the prior month’s 52.5. Also, the Employment Index rebounded 6.7 points, back to expansion territory at 50.5. Atlanta Fed President Raphael Bostic said that the Fed’s long-term estimate for the US unemployment rate has fallen significantly due to a tighter labor market in recent years. Also, Chicago Fed President Austan Goolsbee reiterated that he would like to see more favorable inflation data, although refraining from explicitly ruling out a rate cut in March. Looking at credit markets, US IG and HY CDS spreads widened 0.6bp and 4bp respectively. Equity markets saw the S&P and Nasdaq fall 0.3% and 0.2% respectively.
European equity markets ended flat. Credit markets in the region saw the European main CDS spreads widen by 0.5bp and crossover spreads widened by 5.7bp. The HCOB’s Eurozone Composite PMI rose to 47.9 in January from December’s 47.6, in-line with estimates. The overall Services sector PMI dipped to 48.4 from December’s 48.8, in-line with estimates. Asian equity markets have opened in the green today. Asia ex-Japan IG CDS spreads widened by 1.8bp.
Morgan Stanley raised $1.5bn via a 15NC10 bond at a yield of 5.931%, 20bp inside initial guidance of T+200bp area. The subordinated notes are rated Baa1/BBB+/A-. Proceeds will be used for general corporate purposes.
Deutsche Bank NY raised $1bn via a 4NC3 bond at a yield of 5.706%, 30bp inside initial guidance of T+175bp area. The senior non-preferred bonds are rated Baa1/BBB/A-. The notes have a cleanup redemption where the issuer can call the bonds at par in whole, but not in part, if 25% or less of notes remains outstanding.
GM Financial raised $2.55bn via a three-part deal. It raised:
The senior unsecured bonds are rated Baa2/BBB/BBB. Proceeds will be used for general corporate purposes.
A cross-protection clause refers to a proviso that bondholders can invoke when an issuer misses payments on its other private debt. Upon invoking the clause, bondholders can demand extra collateral or ask for faster or higher payments. In the Chinese LGFV space, some issuers have missed payments on commercial paper, loans and other private debt wherein bondholders can now invoke the clause to their benefit. Guangfa Securities notes that last month, three LGFVs bonds were subject to the cross-protection clause trigger. This is after only three other such cases from 2017 to 2023.
On US credit issuance breaking records as healthy economy emboldens investors
Lindsay Rosner, head of multi-sector fixed income at GSAM
“It’s a great time to be in fixed income… Great starting place in terms of all-in yields; a great place to be in terms of the forward path of monetary policy, which is cutting, rather than hiking”
Edward Marrinan, a credit strategist at SMBC Nikko Securities
“We have a record issuance month because investors are rushing to lock in debt that had very low default potential and could generate 5%-6% in returns this year”
On Bond Bulls Pinning Hopes on Dovish RBI Pivot to Extend Budget Rally
Suyash Choudhary, head of fixed income at Bandhan Mutual Fund
“The fiscal compression will provide much comfort to RBI on attainment of its inflation target”
Puneet Pal, head of fixed income at PGIM Mutual Fund
“We assign a 70% probability of a change in the monetary policy stance”
Sandeep Yadav, head of fixed income at DSP Mutual Fund
“We have been bullish on bonds, and the budget reinforces our view”
On Bill Gross Betting on a Steeper Yield Curve
“If negative, the curve makes it easier to get a higher return for less risk which is destructive to the economy… U.S. curve has been negative for 1.5 years now… Make the curve your interest rate strategy”