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US Treasury yields saw a parallel shift higher across the curve by 3-4bp. Kansas Fed President Jeffrey Schmid said that he believed there was “no need to preemptively adjust” policy given that inflation was above target alongside tight labor markets and considerable momentum in demand. Looking at credit markets, US IG CDS spreads widened 1bp and HY CDS spreads were 3bp wider. Equity markets were mixed with the S&P and the Nasdaq lower by 0.1-0.4%.
European equity markets ended slightly lower too. Credit markets in the region saw the European main CDS spreads widen by 1.2bp while crossover spreads widened by 4.2bp. Asian equity markets have opened slightly lower today. Asia ex-Japan IG CDS spreads were 2.6bp wider. Japan’s Core CPI rose 2% in January 2024, slowing from a 2.3% gain in December and posting the lowest reading since March 2022. However, this was above market forecasts of 1.8%. Japan’s core CPI print is now within the central bank’s 2% target after exceeding that level for 21 consecutive months.
Dubai Islamic Bank (DIB) raised $1bn via a 5Y sustainability sukuk at a yield of 5.243%, 30bp inside initial guidance of T+95bp area. The senior unsecured notes are rated A3/A (Moody’s/Fitch), and received orders of over $2.5bn, 2.5x issue size. The issuer of the notes is DIB Sukuk Ltd. Net proceeds will be used to finance/refinance, in whole/in part, eligible sustainable projects in-line with its Sustainable Finance Framework. The new bonds are priced at a new issue premium of 21bp over its existing 4.8% bonds due August 2028 that yield 5.03%.
HSBC raised $2.75bn via a two-part TLAC deal. It raised $1.5bn via a 6NC5 bond at a yield of 5.546%, 27bp inside initial guidance of T+150bp area. It also raised $1.25bn via a 5Y 11NC10 bond at a yield of 5.719%, 27bp inside initial guidance of T+170bp area. The senior unsecured bonds are rated A3/A-/A+. Proceeds will be used for general corporate purposes. The new 6NC5s are priced 5.6bp tighter to its existing 2.206% TLAC notes due August 2029 (callable in August 2028) that yield 5.60%.
Separately, HSBC USA raised $1.5bn via a two-part offering. It raised $1.5bn via a 3Y bond at a yield of 5.%, 25bp inside initial guidance of T+105bp area. It also raised $1.25bn via a 5Y 3Y FRN at SOFR+96bp vs. initial guidance of SOFR equivalent area. The senior unsecured bonds are rated A2/A-/A+. Proceeds will be used for general corporate purposes.
BP raised $1.3bn via a PerpNC10 bond at a yield of 6.45%, ~61.25bp inside initial guidance of 7-7.125% area. The unsecured and deeply subordinated hybrid notes are rated A2/A-/A+. The issuer is BP Capital Markets PLC and BP PLC is the guarantor. Proceeds will be used for general corporate purposes, including funding the tender offer for its $2.5bn 4.375% PerpNC5.25 notes (more details given below). Fitch notes that the new notes are rated two notches lower than BP’s senior unsecured rating given its deep subordination and discretionary coupon deferral. The notes would qualify for 50% equity credit.
ABN AMRO raised €750mn via a PerpNC7.5 bond at a yield of 6.992%, 50.8bp inside initial guidance of 7.5% area. The junior subordinated notes are rated BBB- (Fitch), and received orders of over €4bn. 5.3x issue size. Coupons are fixed until the first call date of 22 September 2031, and if not called by then, the coupon resets then and every five years thereafter to the then prevailing 5Y MS plus 423.9bp. ABN AMRO Bank NV is the issuer. A trigger event would occur if at any time (a) the issuer’s Solo-Consolidated CET1 Ratio is less than 5.125% and/or (b) the issuer’s Consolidated CET1 Ratio is less than 7%.
Standard Chartered raised €1.25bn via a 8NC7 bond at a yield of 4.196%, 35bp inside initial guidance of MS+180bp area. The senior unsecured notes are rated A3/BBB+/A. Proceeds will be used for general corporate purposes.
Equity credit refers to a dollar amount or a percentage of a hybrid security which will be treated as equity capital for leverage calculation purposes by rating agencies. For example, a security that has a 50% equity credit assigned by a rating agency implies that for the calculation of credit ratios, there would be a 50% equity treatment of the borrowing. Fitch’s criteria for equity-like characteristics include deep subordination, remaining effective maturity of more than five years, full discretion to defer coupons for at least five years and limited events of default. Equity credit is limited to 50% given the cumulative interest coupon, a debt-like feature.
On Seeing More Disinflation But Seeking Proof of Return to 2% – ECB President Christine Lagarde
“The current disinflationary process is expected to continue… Governing Council needs to be confident that it will lead us sustainably to our 2% target”
On Fed Hikes Hurting Consumer Mood More Than Economists Think
Paper by researchers from the IMF and Harvard University
“The current methodology excludes a central part of consumers’ financial well-being… Measurements of the cost of living that exclude financing costs or do not separate them out from the overall costs of purchases will understate the pressure under which consumers, who rely on credit”
On US Corporate Bond Sales Hitting February Record of $153bn
Head of US IG Research and Strategy J.P. Morgan
“Looking forward supply is unlikely to abate with March typically the most active supply month in”
Scott Kimball, MD at Loop Capital Asset Management
“I do think this issuance binge is going to slow down. You are primed for some exhaustion in the primary market”