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Bond Market News

Macro; Rating Changes; New Issues; Talking Heads; Gainers and Losers

US Treasury yields were stable on Friday. US debt ceiling talks were said to have been halted over the weekend, with concerns again focusing on default fears. On Sunday, however, there was news that further talks will be held today between President Joe Biden and Republican House Speaker Kevin McCarthy following a “productive call”.

Separately, Fed Chair Jerome Powell said that it was still unclear if further rate hikes are needed, citing lagged effects of the Fed’s tightening and banking-related credit tightening. The peak Fed Funds Rate dropped 6bp to 5.10% with markets expecting an 86% chance of a status quo at the Fed’s next meeting in June. This compares to a 36% chance of a 25bp hike at the Fed’s next policy meeting late last week. Equity indices closed slightly lower with the S&P and Nasdaq down 0.1% and 0.2% respectively. US IG CDS spreads tightened by 0.2bp and HY CDS spreads tightened by 1bp

European equity markets ended higher. European main CDS spreads were 1.1bp tighter and crossover CDS spreads were 2.1bp tighter. Asia ex-Japan CDS spreads tightened by 2bp. Asian equity markets have opened in the green today. 

Deep Dive on Bonds Course 24 May

New Bond Issues

New Bond Issues 22 May 23

New Bonds Pipeline

  • Kubota hires for $ 3Y bond
  • BGK hires for $ 10Y bond
  • GS Caltex hires for bond


Rating Changes

  • Barclays PLC Upgraded To ‘BBB+’ On Business Diversification And Resilient Performance; Outlook Stable

  • Deutsche Telekom Upgraded To ‘BBB+/A-2’ On Solid Deleveraging Trajectory; Outlook Stable

  • T-Mobile US Inc. Ratings Raised To ‘BBB’ On Strong Operating Momentum, Sprint Integration

  • Moody’s downgrades Yuexiu REIT’s senior unsecured rating to Ba1, assigns Ba1 CFR and withdraws Baa3 issuer rating; outlook stable

  • Curo Group Holdings Corp. Downgraded To ‘SD’ From ‘B-‘ On Completed Distressed Debt Exchange

  • Moody’s changes Portugal’s outlook to positive from stable, affirms Baa2 ratings


Term of the Day: Keepwell Provision

A keepwell provision is a legal agreement between a parent company and a subsidiary to ensure solvency and financial stability of the subsidiary for the duration of the agreement. Keepwell provisions are included in bond terms to offer bondholders confidence on the issuer’s ability to repay. The keepwell structure emerged around 2012-2013 to assuage concerns of investors over a bond issuer’s creditworthiness. However, it is important for investors to understand that keepwells are not a guarantee that the parent company will support the subsidiary in the event of a default, and there has previously been no precedent on the enforcement of keepwell structures.

A Hong Kong court dismissed lawsuits against Peking University Founder Group’s (PUFG) breach of keepwell deeds.


Talking Heads

On Bond Market Caught Between Fears of US Debt Default, Rate Hikes

Jack McIntyre, PM at Brandywine Global Investment Management

Markets are trying to look beyond the debt ceiling and to the economy, inflation and how it influences the Fed. Is it a pause and then a hike again, or do they eventually cut? My bias is to wait it out. But there is a fine line between being patient and wrong”

Daniel Mulholland, head of rates sales and trading at Crews & Associates.

“The market seems to be pricing in sort of a soft-landing scenario now. So I don’t think the Fed rate cuts that had been priced in were warranted. And the Fed is talking tough”

Derek Brown, fixed income head at Beutel Goodman

“While a rate hike in June is possible, the Fed is more likely to ‘skip’ hiking this coming meeting with potentially one or two dissenters voting in favor of a hike… allow the Fed more time to assess whether policy is sufficiently restrictive while maintaining the optionality to hike further if necessary”

On Corporate America Being Hit by a Rate-Sticker Shock

Gregg Lemos-Stein, chief analytical officer at S&P

“All-in costs are much higher, for everyone. It’s all about the base rate”


Swallowing that increase in interest is “easier for a BBB-rated company than one with a single B”

Joseph Neu, founder and CEO of NeuGroup

“You are trying to ride over this hump until rates are coming down again”

On Being the Time to Rethink Love for Cash With Fed Most Likely ‘Done’- JP Morgan Strategist, Tom Kennedy

“Cash very rarely outperforms, and it takes a long time for rates to go up, but they can come down really fast… For the first time since 2006, you can get 5% yields risk-free… you can take almost no risk or near-zero risk and get 5%. So the raising of cash makes sense to me… I think the Fed is done with the hiking cycle. Rates are restrictive enough.”

On Pemex Bonds Under Pressure Amid First Cracks in State Support

Andrew Stanners, EM fund manager at abrdn

“The next president is going to be, at best, a little bit less enthusiastic about the relationship”

Aaron Gifford, EM analyst at T. Rowe Price

“Bit of a mismatch with what you see in terms of pricing… Everyone talks about Mexico being an EM darling, yet there’s this orphaned credit in the complex named Pemex… don’t think you can decouple the two”


Top Gainers & Losers – 22-May-23*

BondEvalue Gainer Losers 22 May 23

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