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US Treasury yields dropped across the curve for a second day, again led by the 2Y and 5Y that fell 8-9bp on soft data. In a sign of possible cooling-off in the US economy, JOLTS job openings came in at 8.8mn, the lowest since January 2021 and missing estimates of 9.5mn. Also, US consumer confidence missed forecasts, indicating a drop to 106 vs. expectations of 116, also pointing to a possible slowdown in consumer spending. CME probabilities for a 25bp hike in November dropped to 43% from 51% a day earlier. US IG credit spreads were tighter by 1.3bp while HY CDS spreads tightened 8.2bp. The S&P and Nasdaq were higher by 1.5-1.7%.
European equity markets were higher too. In credit markets, European main CDS spreads were tighter by 3.6bp with crossover spreads tightening 18.5bp. Asian equity markets have opened higher again this morning and Asia ex-Japan CDS spreads have widened by 0.4bp.
Volkswagen raised €1.75bn via a two-tranche green deal. It raised €1bn via a PerpNC5 bond at a yield of 7.5%, 37.5bp inside initial guidance of 7.875% area. If uncalled after 5 years, the coupon will reset on the first reset date and every 5 years thereafter, at the EUR 5Y Swap rate plus 429.2bp. The new PerpNC5s are priced 23bp wider to its existing 4.625% perps, callable in 2028, that yield 7.27%. It also raised €750mn via a PerpNC9 bond at a yield of 7.875%, 62.5bp inside initial guidance of 8.5% area. If uncalled after 9 years, the coupon will reset on the first reset date and every 9 years thereafter, at the EURIBOR 5Y ICE Swap rate plus 478.3bps. The bonds have expected ratings of Baa2/BBB- and have an 80% clean-up call. The PerpNC5s received orders over €5.3bn, 7.1x issue size. while the PerpNC9s received orders over €3.7bn, 3.7x issue size. Proceeds will be used for eligible green projects, as defined in the issuer’s green finance framework.
Capitaland Ascott REIT raised S$120mn via a 5Y bond at a yield of 4.2%, 30bp inside initial guidance of 4.5% area. The senior unsecured bonds are guaranteed by DBS Trustee and have expected ratings of BBB (Fitch), in line with its guarantor’s rating. It received orders over S$360mn, 3x issue size. Fund managers, banks and corporates snapped up 70% of the deal, while private banks took the remaining 30%. Proceeds will be used to refinance existing debt.
Haiyan Coastline raised $122mn via a 3Y bond at a yield of 5.9%, 40bp inside initial guidance of 6.3% area. The bonds have expected ratings of BBB- (Fitch) and a change of control put at 101. Proceeds will be used for project construction and replenishing working capital.
Beveridge Curve refers to a graph comparing the unemployment rate to the vacancy rate. The curve tries to portray the health of the labor market wherein a low unemployment rate and a high vacancy rate indicate a tight labor market and a growing economy. This is typically a downward sloping curve where the vacancy rate decreases as the unemployment rate increases. Below is a graph of the Beveridge Curve from the US BLS website showing the relationship between the variables.
Fed Governor Christopher Waller has said that a return of the Beveridge Curve to its pre-pandemic level (with a drop in the job openings rate without a rise in joblessness) could help in returning balance between the supply and demand for workers.
On Selling Returns to EMs as China Rally Fades
Nenad Dinic, a strategist at Julius Baer
“We see an increasing risk of the Chinese equity market running into a prolonged stagnation and recommend that global investors calibrate their China position as we expect flattish equity returns. Emerging-market equities will struggle to outperform developed markets if the current headwinds in China persist”
On Treasuries Surging as Weak Data Prompts Paring of Rate-Hike Wagers
Alan Ruskin, chief international strategist at Deutsche Bank
Softer tone seen for job openings “still feels like it needs validation from the August payrolls data — not least because latest data is for the July JOLTS… does clearly show that the internal labor market dynamics are deteriorating, albeit from strong levels.”
On Dollar Stamina Hinges More on China Than Fed – BofA
Bullish on the dollar, “but a lot hinges on whether China rolls out meaningful, coordinated stimulus in coming weeks.”… sentiment on so-called “reflation” in China — or a rebound in economic activity through government stimulus has been “the dominant driver” of dollar performance, “even more so than Fed policy”
On On Living In a World of Higher Public Debt – Barry Eichengreen, professor at Berkeley
“We would all like to see the debt to GDP ratio in the United States and globally be lower because governments will have be able to use more of their tax revenues for purposes other than debt service”
Lufthansa exploring sale of aviation insurance broker, insurer