Weekly Global Credit Wrap w/e 28 Jan 2022
Higher yields and higher spreads, new issues dried up.
*MACRO*
Yields on 2 yr treasuries rose to highest since Feb 2020
Credit spread moves for week ended 28 Jan 2022
Cash credit spreads:
US IG spreads comfortably through 100bps.
US HY and EUR HY +33bps and +25bps respectively this week.
EM Moves less muted at only 3bps wider.
Within IG the greatest spread widening has been in the longer duration segment.
In CDS, Xover moved +16bps to 285 which is 44bps wider on the week. BBG said intraday XOVER hit 295bps, the widest since November 2020.
Brent Crude touched $90/bbl this week
Australia and New Zealand posted high inflation readings
Australia: CPI rose +1.3% qoq in 4Q21 - above expectations - with the annual rate rising to +3.5% yoy. New Zealand inflation toppd three-decade high, CPI there rose by 5.9% for the last three months of 2021, the fastest rate since mid-1990.
Japan: 10y bond yield closed at highest level since 2018 (0.164%)
Weekly Flows (Lipper):
US IG Bond Funds: $464.5m outflow
US HY Bond Funds: $2.8bn outflow (third straight week of outflows)
US Loan Funds: +2bn inflow
*IG*
US IG - Only $2.6b new issues sold this week - BBG
Investors Grab Shortest Debt on Offer as Shield From Rate Hikes - BBG
EUR IG - New issues pricing is getting cheaper in European Credit according to BBG
GE / Inflation - “Managing inflation isn’t a skill many of us have had to exercise". GE CEO Larry Culp said.
Oil services - Halliburton posted a rise in Q4 adjusted profit as higher crude oil prices drove up demand for its oilfield services and equipment. Recall that last week Schlumberger reported good figures too.
Kohl’s - Department store, soared 36% one day this week after the company got a buyout offer of $64 per share. The offer was made by Starboard Value, an activist investor, together with a consortium of other investors.
Telcos/Towers - Deutsche Telekom is weighing a potential merger of its mobile towers with those of rivals including Vodafone and Orange SA - BBG
Megacap Mining - “Unified BHP could get $US41b for M&A: MS” - AFR
“Post-unification BHP could raise $US41 billion ($57 billion) in new debt and equity if it wanted to swoop on another miner or pay special dividends, according to Morgan Stanley.”
Netflix: Bill Ackman and Reed Hastings bought Netflix stock this week
*EM*
LATAM / CENTRAL AMERICA
Honduras Says it Seeks to Reprofile, Not Restructure Debt - Minister of Economic Development - BBG
…walking back comments from new President, echoing a similar thing which happened in Bahamas when the new government was inaugurated there.
Cemex increases cement prices up to 20% MoM to mitigate inflation impact
Gol Airlines secures up to USD 600m in financing to buy 12 additional 737 MAX 8 aircraft - PRnewswires
Azul Says Latam Didn’t Give Its $13 Billion Offer a Fair Shot - BBG
Note Azul’s shares up 16% YTD to the end of Jan 28th 2022.
UNIFIN - Unifin raised USD 130m from four credit lines
CEEMEA
Ukraine - central bank raised the key policy rate to 10% from 9%
Ukraine -Statement by the President: EU financial support for Ukraine
Ukraine - “has enough coal in storage and will have no problems paying its foreign debt”: Prime Minister Denys Shmyhal
Russia - The $1.2 billion RSX ETF posted the biggest inflow in over a year, but maybe for shorting purposes - BBG
Russia’s main equity index bounced off its lows this week
Might be due to some more positive noises out of the Kremlin this week:
*KREMLIN: THERE'S ALWAYS ROOM TO CONTINUE DIALOGUE WITH U.S.
*KREMLIN: NEED TIME TO ANALYZE U.S., NATO RESPONSES, WON'T RUSH
*KREMLIN: WORKING-LEVEL CONTACTS WITH U.S. TO CONTINUE
MHP - Q4
Poultry production volumes in Q4 2021 increased by 7% to 202,657 tonnes
Poultry - Average price per 1 kg (net of VAT) rose by 24% when comparing 2021 to 2020
Tullow Oil Sees 2021 Free Cash Flow Ahead of Guidance - RTRS
Kuwaiti foreign minister visits Lebanon to mend Gulf standoff - Al Jazeera
Lebanon resumes talks with IMF on rescue package
Lebanon’s Crisis: Great Denial in the Deliberate Depression - World Bank
Saudi Arabia plans to keep its overall debt level stable this year
Turkey - EBRD’s Turkey investments reach record high level in 2021 - Daily Sabah
Garanti BBVA Plans to Sell up to $6b Debt Abroad
ASIA
Sri Lanka ‘trying all options’ to avoid default, says finance minister - FT via Daily Mirror LK
Bharti Airtel: the Indian telco announced that Google will invest up to US$ 1bn in the telecom company - RTRS
“With Jio and Airtel, Google now covers nearly 75% of India's smartphone market, Ambit Capital analyst Vivekanand Subbaraman said.”
Pakistan printed a sukuk ($1b 7Y at Par to Yield 7.95%) brushing heightened aside US equity mkt vol on the day it was issued (Monday)
*CHINA*
PBOC lowered its 14-day reverse repo rate after making a similar reduction in the 7-day rate last week
China Property - Shimao is moving to offload 34 projects across 17 cities
China Property - Sino-Ocean Group Holding raised $200m via a tap of its 2025 issue at 6.4% (price of 90.252).
Astonishing to think that only 6 months ago they were paying 2.7% and now they had to pay 6.4% for an IG rated credit.
Oaktree scuppers Evergrande restructuring plan by seizing ‘Versailles mansion’ plot
(Financial Times) -- Oaktree Capital has scuppered a plan to restructure Evergrande’s $20bn of offshore debts by seizing a vast Hong Kong plot where the ailing property developer’s chair had intended to build a Versailles-like mansion.
*HY*
Yields on US HY went through 5% this week
The yields closed the week at around 5.2% (this chart is from midweek).
Creditsights Global Head of Credit Strategy, says HY debt has become "much more attractive" after Monday's spike in market volatility - BBG Surveillance Pod
EUR HY - 2 deals postponed this week (Summit properties and Covis Pharmaceuticals)
Slump in Junk Bond Sales Spells Risk for M&A Financing Pipeline - BBG
AMC Moves To Refinance Debt – WSJ via Deadline
Golar LNG - Cool Company Limited Closes $275 million Private Placement of Shares - PR News Wire
US Steel rose 5% on Friday after reporting strong figs - BBG
U.S. Steel is seeing the OEMs order books for autos and appliances increase each month in the first quarter, while orders in Europe are expected to accelerate in the seasonally strong second quarter, according to its CEO.
*ESG*
Eastern Pacific Shipping (company) bans coal from its commercially managed vessels
Vedanta Limited - Improved its MSCI ESG rating to B (earlier CCC) - PRNewsWire
*RATINGS*
Angola upgraded to B-
Avis Budget Upgraded to BB by S&P
Chesapeake Energy Outlook to Positive by S&P
Credito Real - Downgraded two notches to B- from B+
Kuwait -Fitch Downgrades Kuwait to ‘AA-’; Outlook Stable
Meituan - Affirmed at BBB- by Fitch; Outlook Remains Negative
Occidental - was upgraded to BB+ from BB by S&P
Tesco - Affirmed at BBB- by Fitch
Tesla - Moody's upgrades Tesla's corporate family rating to Ba1; outlook positive
*BOND TRADING*
MarketAxess Q4
MarketAxess had results this week which didn’t help stem the decline in the shares which are down 40% since start of 2021 and ~20% ytd.
Its FY presentation is useful for anyone who works in credit or is interested in E-trading. My main take-aways from looking at the release:
22% lower commissions on IG bonds in 4Q21 vs 4Q20 but decline in “Other credit” was less at only 3.5%
Distribution fees earned grew
Higher than expected expenses
Looking forward, MKTX (and other platforms’ e.g Tradeweb) trading volume stats will be watched to see if they are benefitting from the rising volatility in credit markets. Recall that 2021 was a record year for leveraged finance issuance in the form of loans and bonds ($1tn+ annual issuance). If these bonds need to change hands (say from HY Mutual Funds/ETFs to distressed investors) then MKTX and TW often sit in the middle of these trades.