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US Treasury yields rose by 3-4bp across the curve on Wednesday. The US Court of International Trade blocked Donald Trump’s tariffs, ruling that he had invoked an emergency law wrongfully in order to justify the tariffs. However, the Trump administration said that they have filed a notice to appeal the ruling. The FOMC’s May meeting minutes showed that the Fed believed that the economic outlook uncertainty had increased, and that it warranted a “cautious approach”. However, Fed officials did note that recent data indicated a solid pace of expansion in economic activity, while inflation remained somewhat elevated. Most officials added that inflation may remain more persistent than expected.
Looking at US equity markets, S&P and Nasdaq were lower by 0.5-0.6%. Looking at credit markets, US IG and HY CDS spreads widened by 0.4bp and 1.9bp respectively. European equity indices also closed lower. The iTraxx Main and Crossover CDS spreads widened 0.1bp and 0.5bp respectively. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads widened by 0.6bp.
New Bond Issues
HSBC $ PerpNC5.5 AT1 bond at 7.625% area
Sharjah Islamic Bank raised $500mn via a PerpNC6 AT1 sukuk at a yield of 6.125%, 37.5bp inside the initial guidance of 6.5% area. The junior subordinated note is unrated, and received orders of over $1bn, 2x issue size. The notes are callable from 4 December 2030 to 4 June 2031. If not called, the coupon resets then and every six years thereafter to the 6Y UST + 195.6bp.
AT&T raised $3.5bn via a three-tranche offering. It raised:
These senior unsecured bonds are rated Baa2/BBB/BBB+. Proceeds will be used for general corporate purposes.
Mamoura raised $1bn via a 10Y sukuk at a yield of 5.097%, 35bp inside initial guidance of T+95bp area. The senior unsecured note is rated Aa2/AA, and received orders of over $5bn, 5x issue size.
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Rating Changes
Moody’s Ratings upgrades Global Partners’ CFR to Ba3 with stable outlook
Azul S.A. Downgraded To ‘D’ From ‘CCC-‘ On Chapter 11 Bankruptcy Filing
Moody’s Ratings affirms Goodyear’s B1 CFR; revises outlook to stable
Term of the Day: Extension Risk
Extension risk is the risk of bonds not getting called by the issuer and thus extending the life of the bond. This is particularly significant in the case of far maturity bonds, Perpetual Bonds (Perps) and AT1s. While market participants often assume that Perps/AT1s will be called on their first call date, that is not always the case. There are a few examples in recent times. Santander and Deutsche Bank surprised the markets in 2019 and 2020 when they did not call their AT1s on the first call date. The most recent case of Deutsche Bank skipping the call on its 4.789% Perp in March, also adds to the list of AT1s whose life has been extended.
Similar to the above cases, NWD’s investors may also face an extension risk given that the developer has not issued a call notice on its 6.15% Perp.
Talking Heads
On Possibility of Dollar Facing ‘Major’ Drop in 2026 – Steve Englander, Standard Chartered
“If the economy or financial markets falter, the downside risk to the USD is higher the greater the accumulation of external liabilities…would very likely show up as risk premia, either in the form of higher rates or a weaker USD…If the debt path is not flattened, borrowing terms may become increasingly onerous”
On Revised Inflation Perceptions Due to Pandemic – NY Fed President, John Williams
“The past five years have, I think, changed people’s perceptions of inflation…Policymakers should aim to anchor not only longer-term estimates of future consumer price increases, but the whole curve…The thing you want to avoid is allowing inflation to become highly persistent, because highly persistent can kind of become permanent”
On Treasury Selloff Extending Further – Leah Traub, Lord Abbett & Co.
“This is a global steepening of the yield curve…There are a lot of different nuances to the same story, which is that demand for longer-term securities is diminishing at the same time as supply is growing. That’s going to put pressure on the long end of all these curves”
Top Gainers and Losers- 29-May-25*