US short-end Treasury yields were 3-4bp lower across the curve. The peak Fed funds rate inched another 1bp higher to 5.41% for the July 2023 meeting. Markets continue to price in a 25bp hike at each of the Fed’s next three meetings in March, May and June, based on the CME’s maximum probability calculations. US IG and HY CDS spreads tightened by 2.7bp and 7bp respectively. The S&P and Nasdaq ended the day higher, up by 0.3% and 0.6% on Friday.
European equity markets ended over 1% higher. European main CDS spread tightened by 1.7bp and the crossover CDS spread tightened 8.9bp. Asian equity markets have opened in the green, following the broad uptick in global equities. Asia ex-Japan CDS spreads tightened by 4.8bp.
The senior green bonds have expected ratings of Baa3/BBB-/BBB-. Proceeds will be used to (re)finance Green Categories as defined within the issuer’s framework.
AT&T raised €1.25bn via a 2Y FRN bond at a yield of 3.096%, 5bp inside initial guidance of 3mE+45bp area. The senior unsecured bonds have expected ratings of Baa2/BBB/BBB+, and received orders over €2bn, 1.6x issue size. Proceeds will be used for general corporate purposes, including the repayment of the issuer’s $2.5bn Term Loan Agreement.
Lloyds Bank raised $1.25bn via a 6NC5 bond at a yield of 5.871%, 20bp inside initial guidance of T+190bp area. The senior unsecured bonds have expected ratings of A3/BBB+/A. Proceeds will be used for bail-in and general corporate purposes. If not called on or after the optional redemption date (6-March-2028), the current fixed coupon of 5.871% will be reset to 1Y Treasury+170bp. The new bonds are priced at a new issue premium of 24.1bp to its existing 4.375% 2028s that yield 5.63%.
NatWest raised $2bn via a two-tranche deal. It raised
The senior unsecured bonds have expected ratings of A3/BBB/A. Proceeds will be used for general corporate purposes.
Sovereign risk premium refers to the additional implied spread that a country’s sovereign bonds offer vs. a benchmark for a particular currency. Put differently, it is the incremental return (or yield) that investors demand from a country to buy its sovereign bonds vs. the benchmark.
For instance, Nigeria’s 7.375% dollar bond due 2033 currently yields 11.59% whereas the US Treasury’s 3.5% 2033s yield 3.92%. Thus the sovereign risk premium is the difference between the two at 767bp.
“Buying bondsfor the first time in a long time… I like 4.8% because it’s bigger than 4.4%… I think the days of people beating the market just by investing in tech are going to be over. And we’re going to go to a new paradigm…I think the days of investing in companies that have no earnings that have multiples of 200x will be gone”
“Core goods inflation has started to come down. Several indicators suggest that housing services inflation is likely to come down in the coming months. There is more uncertainty surrounding inflation in core services excluding housing… I’m under no illusion that it’s going to be easy to get the inflation rate back down to 2%”
Kristen Bitterly, head of North America investments at Citi
“The number one question that we get, especially once that six-month T-bill crossed over that 5% threshold, is why wouldn’t I sit this out and hang out in T-bills?… We don’t think there’s really any need to stretch in terms of yield. You don’t have to go into high yield, you can certainly take advantage of those short-duration T-bills”
Peter Chatwell, head of global macro trading at Mizuho International
“I don’t think, given the strength of the growth data, that the inflation upside surprises will diminish soon. The risk of further hawkish rates repricings will make the short-end of the curve look even more attractive as an income generating safe haven”