Weekly Global Credit Wrap w/e 21 Jan 2022
Dusting off the blog for 2022...
I’m aiming to restart this blog on Credit Markets by writing in a more summarised fashion. As always feel free to leave feedback/corrections! Thank you.
*GLOBAL MACRO*
UST - Some key levels were been broken during the week:
- 2y yields broke 1%
- 5y yields rose to 1.64%
- 10y yields rose to 1.85% (later hit 1.90%)
As at Jan 18th 2022. Thanks to @Altheaspinozzi for these stats.
Treasuries rallied into the end of the week as safe havens were sought away from the carnage of the equity market. Treasury yields below:
Pimco Says Treasuries ‘Becoming More Attractive’ After Selloff (Jan 20th) - A call that looks quite prescient in light of the rally in Treasuries as we closed the week. BBG
Credit Spreads moves YTD - BBG Barc AGG
US HY and US IG seeing greatest moves in spreads YTD. US IG credit spreads approaching 1 year wides.
Source: BBG
Oil benchmarks remain at high levels
WTI closing week at $85
Brent closing at $88
Reuters reported a 7 year high for oil prices (highest since Oct 2014).
Ukraine / Russia standoff contributing to price volatility and general tightness of oil market.
Oil is a key metric for large parts of EM and HY bond sectors which contain a number of Energy companies/oil services firms and oil exporting/importing nations as well as large Energy users like Airlines.
UK / EUROPE Rates Inflation stories
U.K. Inflation surprised with jump to highest in 30 years
UK 10-Year Gilt yield climbed to 2019 high (~ 1.285%)
German 10 year yield turned positive for first time since 2019
*CORPORATES*
Global cargo carriers had a record US$ 150bn year
Maersk’s quarterly earnings beat expectations, fueled by record freight rates for container shipping - RTRS
French state pledges to stand by EDF - finance minister Le Maire - RTRS
Asda Owners Eye £10B Boots Takeover: Daily Mail
American Airlines aiming to cut debt $15 bn by 2025 - Company Q4 release
Copper Miner First Quantum increases debt reduction target by $1bn in short to medium term - Company Capital Markets Day
Scottish Mortgage Investment Trust (SMT) - UK’s popular Global Tech Investment Trust issued $400m of long term borrowings
*INV GRADE*
Global high-grade index falls 2.2% since the start of 2022 - This is the most since data going back to 2000. The gauge is faring worse than all others in the category of credit securities outside of emerging markets. BBG Article from @tasosvos covers this topic in an excellent article: World’s Safest Company Bonds Have Worst Start to Year in Decades - BBG
*HY & Loans*
Bloomberg US Corporate HY Bond Index is already down 1.23% this month (BBG) - Its largest monthly fall since March 2020 when the pandemic began. Meanwhile, CCC sector is outperforming as its YTD loss is only 0.5%.
$ HY new issue market - Deals getting done despite headline weakness in HY total returns and see-sawing flows into HY bond ETFs. One of the notable issuers being the private Jet operator Vistajet which priced $1bn of notes (upsized from $800m) after ratings upgrades from two ratings agencies.
Loan funds just saw record cash influx, Refinitiv Lipper says - Loan funds added a record $2.25 bn to them in the week ended Wednesday Jan 19th.
Buyout Frenzy Is Loading U.K. Household Names With Junk Debt - BBG
Softbank - Priced Its Biggest-Ever Yen Bond Worth $4.8 Billion
*CHINA*
Better tone here this week due to rate cuts from China and press reports of more helpful measures for China Property bond issuers. Prices of some bonds for the likes of Evergrande were up +5 to 6 pts into the high teens (in the Dollar) this week. Funding conditions appear to be improving as at least two well known China Property firms issued debt this week.
China tops forecasts with 8.1% growth in 2021 but confirmed the weakest growth figure since Apr20
China home prices fell 0.28% month on month in December, the fourth decline
China drafts rules to ease property developers' use of escrow funds - RTRS
China: lenders lowered borrowing costs for a second straight month
China lowered the one-year and five-year loan prime rates were cut overnight by 10bp to 3.70% and 4.6%, respectively
Country Garden raised HKD 3.9bn (US$ 500m) via a 4.95% convertible bond due 2026
Greentown China raised US$ 400m a 3Y green credit enhanced bond at a yield of 2.3%.
*EM*
Brazil - BRL has gained YTD as Lula Woos Centrist to Join Ticket - BBG.
Sri Lanka – Paid its $500m Jan 2022 bond which matured on the 18th. The country is touted as a potential restructuring candidate this year by many EM Houses / Economists.
CBSL (Sri Lanka) raised the standing deposit facility rate and the standing lending facility rate by 50 basis points (bps) each to 5.50% and 6.50%, respectively. - RTRS
Turkey news flow, better week for Turkish Credit..
Turkey May Spend $3.8 Billion to Boost State Banks' Capital -BBG
Turkey signs $5bn swap deal with UAE, boosting foreign reserves - Al Jazeera
Turkey’s central bank voted to hit pause on an easing cycle that started in September and saw the lira crash - Al Jazeera
Egypt non oil exports grow 26% y/y to a record $32.1bn in 2021
*BOND ETFS*
A number of Bond ETFs appear to be oversold or nearing oversold levels.
Source: Bloomberg
The oversold characteristic probably extends to a number of mutual funds in the fixed income space, but for ease I’ve shown the most well known ETFs.
*CONVERTIBLE BONDS*
Following sell off in “high growth” stocks, a number of converts have become “busted converts” or have moved further out of the money. Some examples below including Virgin Galactic which only issued this month!
Source: Bloomberg
Glad you’re back. Useful stuff for me, thank you and well done!