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Bond Market News

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

US Treasury yields jumped across the board led by the 2Y and 5Y up the most, by 11-12bp. Robust labor market was seen to strengthen the case for a 25bp rate hike at the upcoming FOMC meeting in June. Initial jobless claims rose by 4k to 229k, well below the expected 245k outturn. Besides, the differences over raising the US debt limit are said to have narrowed although an agreement has still not been reached.

Markets now expect a 40% chance of a 25bp rate hike in June as per CME probabilities. This compares to just about an 8% chance of a rate hike a month ago. The peak Fed Funds Rate moved another 3bp higher to 5.31% for July. Equity indices closed higher as the S&P and Nasdaq gained 0.9% and 1.7% respectively on the back of a rally by big AI participants. US IG CDS spreads tightened by 2.1bp and HY CDS spreads tightened by 10.9bp.

European equity markets ended lower too. European main CDS spreads tightened 1.7bp and crossover CDS spreads were 8.3bp tighter. Asia ex-Japan CDS spreads also tightened by 0.3bp. Asian equity markets have opened broadly lower today.


New Bond Issues

New Bond Issues 26 May 23

Bosch raised €4.5bn via a four-trancher. Details are in the table below:

The senior unsecured bonds have an expected rating of A/A (S&P/Fitch). The bonds have make whole calls and 75% clean up calls with proceeds to be used for general corporate purposes.


New Bonds Pipeline

  • Kexim hires for $/€ bond, including green tranche

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


Rating Changes

  • VTR Finance N.V. Downgraded To ‘CCC’ From ‘B’ On Continued Cash Burn And Deteriorating Liquidity, Outlook Developing

Term of the Day

Hybrid Bonds

Hybrid bonds are called “hybrids” because they combine characteristics of both bonds and equities. These instruments may be issued by both banks and non-financial corporates. A common example of hybrid bonds would be perpetual bonds, which are fixed income securities without a maturity date (similar to equities) that pay a fixed coupon to holders (similar to bonds). Perpetuals typically have a call option, which allows the bond issuer to redeem the bonds at a fixed date. It is important to note that the option to redeem lies with the bond issuer, not the holder.

Vodafone raised €750mn via a 61.25NC6.25 Hybrid bond yesterday at a yield of 6.625%.


Talking Heads

On Fed Traders Fully Pricing In an Interest-Rate Hike Once Again

Dominic Konstam, head of macro strategy at Mizuho

“The market has been eager to price for a pause and then cut not necessarily as a modal outcome but more about the risk of something suddenly breaking that forces a sharp reversal out of the Fed…  Fed won’t feel any need to embrace cuts and they are unlikely to give up on the potential that more hikes are needed”

Priya Misra, global head of rates strategy at TD Securities

“The market is assuming a debt limit deal and no real spending cuts”

On Wall Street Scrutiny Resetting $6tn in ESG Debt

Scott Krohn, treasurer of Verizon

“(Transparency is) the best recipe to have a successful program… can help an issuer “stand out from some of the noise coming from transactions that maybe have lesser quality of reporting”.

Andrew Poreda, a senior research analyst at Sage Advisory

“Before, [borrowers] were just looking to try to find an excuse to slap a label on a bond”… ESG bond terms are “feeling a lot more concrete and a lot more authentic”

Eila Kreivi, EIB’s chief sustainable finance adviser

“I don’t think, in 2007, we had a precise idea of what we wanted green bonds to achieve. If the idea was to attract more attention to the climate agenda and environmental lending, that has been done.”

On South Africa Rate Hike Failing to Stop Rand Slumping to Record Low

Brendan McKenna, EM strategist at Wells Fargo

“The health of the local economy is now the primary concern. It’s difficult to make a really compelling case to deploy capital toward South Africa and the rand at the moment…. as underperformed for most of this year… likely to continue”

Michelle Wohlberg, analyst at Rand Merchant Bank

“The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake”


Top Gainers & Losers – 26-May-23*

BondEvalue Gainer Losers 26 May 23

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