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Bond Market Insights - Wed, 28 Feb 2024

DJIA -0.3% / S&P +0.2% / CCMP+0.4% / CRUDE +1.2% $78.50 / GOLD -0.1% $2,030 / VIX -2.3% $13.4. Apple abandon’s EV dreams after 10yr project. GS boss voices familiar soft-landing uncertainty.

Supply weighed on government bond markets. German Bunds and UK Gilts struggled as they grappled with the huge 8bn 30yr French OAT auction. US treasury investors seemed reluctant to buy the dip ahead of the $42bn 7yr auction. US data was mixed with weaker durable goods data provided a fleeting front-end bid while weaker consumer confidence was ignored. Yields peaked late in the day with 5yr & 10yr back above 4.31% while 30y was over 4.44%

Kansas City Fed’s Schmid was hawkish: With inflation running above target, labour markets tight and demand showing considerable momentum, there is no need to pre-emptively adjust rates. This helped push short-dated SOFR contracts down. December (SFRZ4) went out near the lowest levels since mid-November.

What’s Priced in? Just 15bps of cuts into the June meeting with only 75bps through the end of the year, back in-line with the Fed median forecast.

In Asia yesterday Japan’s CPI print came in higher than expected propelling JGB yields to the highest level since 2011, with 3yr yields up 1.5bps to 0.16%.

Asia new issues are finding willing buyers. Sumitomo Mitsui Financial Group issued a $1bn Perp NC10.25 AT1 otherwise described as a perpetual hybrid note, callable after 10.25 years. Initial price talk was at 7.25%. Price talk slipped to 7% in New York. Finally pricing came at 6.6%. The issue was more than 9x oversubscribed. In a net supply negative market yield hungry investors will keep coming.

This appetite might be tested by Adani Group, which begins a series of roadshows for its first USD bond sale since the Hindenburg assault. Adani Green Energy has put a large group together to arrange a 18yr note, expected to be rated BBB- by Fitch. Proceeds are intended to be used to redeem $500mm ADGREG 6 ¼ 12/10/24.

Sumitomo Trust Bank is also issuing; 3 tranches of 3yr, 5yr and 10yr senior unsecured bonds. Initial price thoughts are 3yr at T+105, 5yr at T+120 and 10yr at T+135bps.

We could also get another cash raise from Rakuten, following the success of its $1.8bn RAKUTN 11 ¼ 02/15/27 which was issued at the end of January and is now trading with a 106 handle, yielding under 9%. They are looking at a bond like equity structure, a bit like preferred shares.

In the US corp market Paramount (BBB-)is being watched with interest as the bid from Allen Media (CCC) progresses. There are doubts that the bid will succeed, but investors are checking the prospectuses. Paramount bonds include 4 with no change of control clause, totalling $3.46bn. 20 other bonds, amounting to $9.49bn, do have a Change of Control clause (CoC) bonds. A reminder that the bond business is detail orientated.


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