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US Treasury yields edged lower yesterday, reversing the pick-up seen a day prior. Yields were down 6-7bp across the curve. Initial jobless claims for the prior week rose by 13k to 231k, higher than forecasts of 220k. The Peak Fed Funds Rate was unchanged. US credit markets saw IG CDS spreads staying flat while HY spreads tightened by 1.4bp. S&P rose and Nasdaq inched higher by 0.1%.
European equity markets were mixed. In credit markets, European main CDS spreads were wider by 0.7bp and crossover spreads widened by 3.5bp. Asian equity markets have opened weaker today and Asia ex-Japan IG CDS spreads were wider by 0.6bp.
Qatar Islamic Bank (QIB) raised $500mn via a 5Y sukuk at a yield of 5.581%, 40bp inside initial guidance of T+155bp. The senior unsecured notes are rated A- by Fitch and received orders over $3.3bn, 6.6x issue size. The issuer is QIB Sukuk Ltd.
Macquarie Group raised €750mn via a long 6Y bond at a yield of 4.75%, 30bp inside initial guidance of MS+200bp area. The senior unsecured notes are rated A2/BBB+/A and received orders over €2bn, 6.7x issue size. Proceeds will be used for general corporate purposes.
Nordea Bank raised €500mn via a 10.25NC5.25 green Tier 2 bond at a yield of 4.92%, 30bp inside initial guidance of MS+215bp area. If uncalled, the coupon will reset at the 5Y EUR Swaps plus a spread of 185bps. The bonds have expected ratings of Baa1/A-/A, and received orders over €2.1bn, 4.2x issue size. Proceeds will be used to finance/refinance green bond assets evaluated and selected by the Issuer pursuant to its Green Funding Framework.
AgBank of China Hong Kong (ABC HK) raised $300mn via a 2Y FRN at SOFR+58bp vs. initial guidance of SOFR+100bp area. The senior unsecured notes are rated A1/A/A and proceeds will be used for general corporate purposes.
Discount Perpetual Securities (Discos) typically refer to legacy perpetual floating rate bonds issued by a bank that trade at a significant discount to par value. These legacy bonds were typically issued in the 1980s and are priced equivalent to or in some cases even considered as Tier 2 capital at the issuing banks. While they may share some similar features with AT1s, risks related to non-payment of coupon and write-down for example are considered to be significantly lower. “Coupons are either cumulative or non-cumulative but are not subject to automatic restrictions in case of a maximum distributable amount buffer breach,” as per Atlanti Asset Management. Also, there is no explicit write-down or equity conversion trigger.
On Standing Out in Call for Stocks Over Bonds – Barclays Strategists
“US Treasury yields are likely to reverse some of the decline from the peak as the economy surprises to the upside of pessimistic growth expectations over the coming months. We think stocks will benefit from a fairly benign bottom to this business cycle and look through near-term earnings disappointments.”
On Boom for ‘Big Long’ in bonds
Lazard chief strategist Ronald Temple
“The immaculate disinflation continues…. Absent any exogenous shocks, the Fed is increasingly likely to be in a position to cut rates in the second quarter of 2024
Lombard Odier’s Florian Ielpo
“That print does not see the end of inflation, but is a definitive hint in that direction… supportive of equities, credit and duration – lowering notably the risk that markets feared the most: overtightening”
On US Yields Underestimating ‘Adverse Fiscal Dynamics’ – Barclays
“Current yield levels are not fully reflecting the adverse fiscal dynamics, which may be worth 50-75bp on long-term yields… a structurally wide budget deficit can raise both (monetary policy and term premium)… Fiscal worries are going to be a headwind for the bond markets.”
“Despite the various shocks and stresses that emerged during this year, Treasury market functioning has been orderly. There is still more to complete. Efforts to continue strengthening Treasury market resilience will serve us well over the years to come.”