Friday saw the first back-to-back weekly gains since February in the US stock markets as investors are betting that aggressive central banks and governments will mitigate the current economic pain and stabilize markets. The S&P rallied 2.7% to close the week 3% higher. This has pushed the index up over 30% since Mid-March. US crude oil prices dropped to an 18-year low on Friday, with WTI falling 8% to $18.15 a barrel. Meanwhile, credit markets had their best week in years as investors hunt for yield. In Asia, dollar bond spreads tightened the most in a decade while US junk bond funds saw record inflows. Asia ex-Japan IG CDS spreads tightened 20 bps last week to 113 bps. Asian markets and US index futures are opening slightly lower this morning.

New Bond Issues

  • Kexim $ 3yr floater @ 3mL+160bp area

S&P Cuts Indonesia’s Rating Outlook, Implications for India

S&P on Friday revised Indonesia’s credit rating outlook to “negative” from “stable”, indicating the rising financial risks the country faces as it ramps up government spending in response to the coronavirus outbreak. The implication for India is important. India at BBB- is a notch lower than Indonesia but is still investment grade. India has always been allowed a higher fiscal deficit than other countries because India has always been a high growth economy. But with real GDP expected to dip to 1.9% according to IMF and much lower according to other economists, India’s traditional growth advantage is diminishing. If rating agencies have a low threshold to accept higher deficits along with lower growth in Indonesia, they will use the same yardstick for India.

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Moody’s Places Sri Lanka’s B2 Ratings on Review for Downgrade

Moody’s has today placed the Government of Sri Lanka’s long-term foreign currency issuer and senior unsecured B2 ratings under review for downgrade. The decision to place Sri Lanka’s ratings on review for downgrade is prompted by Moody’s assessment that the acute tightening in global financing conditions, fall in export revenue, and sharp slowdown in GDP growth as a result of the global coronavirus outbreak exacerbate Sri Lanka’s existing government liquidity and external vulnerability risks, raising risks of heightened financing stress and macroeconomic instability. Moreover, the economic and financial shock will further dim medium-term prospects for reforms that would meaningfully strengthen Sri Lanka’s fiscal and external position.

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Ford Raises $8 Billion of Junk Bonds Paying 9.625% for a 10 Year Bond

After one of its largest ever quarterly losses, Ford Motor Co., which is a recent Fallen Angel having had its credit rating lowered from Investment Grade status, decided to raise debt to shore up liquidity. Ford raised $8bn of unsecured debt in three parts with the longest maturity, 10 years, yielding around 9.625% after initial guidance of 11%. It also raised $3.5bn each at 5 year and 3 year maturities yielding 9% and 8.5%. This compares to 3.5% it paid in February for a 5 year bond, which means its costs have doubled in a matter of months. While Ford could raise secured debt if it decides to, “we continue to worry that its significant cash burn and increasing debt load could very much cap the equity value, even when the industry recovers,” Emmanuel Rosner, a Deutsche Bank AG analyst with a hold rating on Ford shares, said in an April 13 report. The company has roughly $157 billion of debt outstanding, most of which comes from its higher-quality finance unit.

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Pemex Gets Second ‘Junk’ Rating; Fitch Changed Taiwan Banks Outlook to Negative

A second rating agency has downgraded Mexico’s state oil company Pemex to junk and this will trigger more forced bond sales and raise financing costs in the future. Moody slashed Pemex’s rating by two notches to Ba2 from Baa3 with a negative outlook. “This absolutely cements the fact that Pemex in no shape or form will be able to go to the market for new debt or to refinance debt without sovereign guarantees,” said John Padilla of the consultancy IPD Global. “No one really believes [the government] would allow Pemex to default, but now [because of coronavirus] there is a much bigger squeeze on capital,” he added. Mexico scored a victory at the weekend when global oil producers swallowed its refusal to cut output by 400,000 barrels a day, allowing it to reduce by just 100,000 b/d and have the US make up the shortfall.

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Fitch Ratings has revised the sector and rating outlook for Taiwanese banks to negative from stable, as we expect a large demand shock to Taiwan’s export-dependent economy due to the global coronavirus pandemic. Fitch has lowered the forecast for GDP growth to 0.3% for 2020 against a forecast of 2.3% before the coronavirus, compared with a trough of 0.8% in 2008 and -1.6% in 2009 during the global financial crisis (GFC).

 

Ecuador Reaches Deal to Postpone Debt Repayments, Argentina Leaves Investors Cold

Ecuador and its bond holders agreed to suspend its debt repayments for the next four months, pushing back the threat of default until at least August. $811mn is due between March and August 15 and between 82%-91% of bond holders (depending on the bond) have accepted the deal. With Argentina, investors have been met with harsh restructuring terms on $83bn of foreign debt that could potentially lead to its ninth default if the government fails to improve its terms. “If it is a take-it-or-leave-it offer, then there won’t be an agreement,” warned one international creditor close to the negotiations. “Argentina continues to seek maximum [debt] relief without articulating a credible plan for how the debt will be paid in the future. Money for nothing does not sell well even in the best of times,” said Walter Stoeppelwerth, chief investment officer at Portfolio Personal Inversiones, an investment firm in Buenos Aires. He argues that the government’s aggressive proposal “points to a ferocious negotiation that will only end in one of two outcomes: hard default or Argentina sweetening the deal terms . . . When push comes to shove, Alberto Fernández will have to take a political decision to make a deal.”

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Top Gainers & Losers – 20-Apr-20*

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