The Fed, ECB and BOJ meet this week as lockdowns end in some parts across US, Europe and Asia. Last week, US markets ended on a positive tone with Dow Jones, S&P 500 and Nasdaq Composite gaining 1.11%, 1.39% and 1.65% respectively, with Microsoft and Apple leading the way with 3.13% and 2.88% advances. European markets struggled with the DAX, CAC 40 and FTSE Milan falling 1.69%, 1.30% and 0.89% respectively, while the FTSE 100 dropped 1.28% after a record 5.1% plunge in March UK retail sales. Europe’s main and crossover CDS spreads widened 2.5bp and 12bp to 84.5bp and 500bp respectively. The US investment-grade CDS spread rose 0.5bp to 94bp. Asia ex-Japan IG CDS spreads were unchanged at 124bp.

Asian markets are opening mixed this morning with HK and China stocks lower by around 1% and Japanese and Taiwanese markets higher by around 1%. US index futures are up around 0.5%. Founder Securities has launched a tender offer for up to $70mn of its 6.9% guaranteed bonds due November 2020. The offer price is $900 per $1,000 in principal plus accrued interest. The bonds are currently trading at 90.6 on the secondary markets.


New Bond Issues

  • Philippines $ 10yr @ T+220bp area, $ 25yr @ 3.375% area
  • Korea East-West Power $ 5yr @ T+190bp area

Fitch Downgrades Sri Lanka to B-; Hilong to B; S&P Affirms Italy & Cuts Outlook on Sharjah

Fitch Ratings has downgraded Sri Lanka’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to B- from B. The Outlook is Negative. According to Fitch, the shock to Sri Lanka’s economy from the coronavirus pandemic will exacerbate already-rising public and external debt sustainability challenges following tax cuts and an associated shift in fiscal policy late last year. The pandemic will especially hurt the tourism sector, which, combined with weaker domestic demand, will further damage Sri Lanka’s public and external finance metrics.

For the full story, click here

Fitch downgraded Chinese oilfield equipment provider Hilong Holdings from B+ to B. The rating agency said that it expects the company to use its cash and undrawn credit facilities to repay its $165mn 7.25% bonds due June 2020. This would deplete the company’s near-term liquidity. The company accompanied the downgrade with a negative outlook citing deteriorating earnings and cash flow on the back of falling oil prices.

For the full story, click here

S&P affirmed Italy’s rating as it dodged a downgrade to junk. S&P also changed outlook for the emirate of Sharjah to negative.


Tahoe Group Founder Blacklisted Over Failed Repayment; China Yida Holdings Default

After failing to repay loans to a Chinese trust company, the founder and chairman of Tahoe Group – Huang Qisen – was added to the Supreme Court’s public database. This means he cannot stay in high-end hotels, visit golf courses or nightclubs and must ride economy class on flights. It also stops him from buying property, renting office space or apartments, going on holiday and sending his children to expensive private schools. Moody’s said in March that the company had $4.3bn in short-term debts. The crisis has pushed several developers closer to default this year. Real estate group China Yida Holdings, for example, failed to repay a US$52.8m bond last week, triggering a cross default.

For the full story, click here


Indian Bond Markets Edgy After Franklin Templeton Fund Closures

On Thursday, Franklin Templeton informed investors that it would be winding-up six of its Indian debt schemes due to large redemption pressure at a time when liquidity in the Indian bond market has dried up. The impact of Franklin Templeton’s decision may be first felt on bonds rated AA and below. Yields on AA rated bonds had spiked even before the announcement. As of Friday, AA rated corporate bonds with a three-year duration were trading at 240bp over the comparable government bond yields. Shorter dated one-year bonds saw an even wider spread of 263bp. Vedanta Ltd.’s bond, with a coupon rate of 8.75% maturing in 2022, traded at a yield of 11%. Uttar Pradesh Power Corporation’s bond, with a coupon rate of 8.97% maturing in 2022, traded at a yield of 10.6%. Shriram Transport Finance Corporation’s bond, with a coupon rate of 10.25% maturing in 2024, traded at a yield of 12.5%.

For the full story, click here


Tata Steel (Abja) Seeks Ten Times Available Government Bailout Amount

Britain’s largest steel manufacturer will need £500 million in Government support to weather the coronavirus crisis, according to Labour MP Stephen Kinnock. The Government has introduced a Coronavirus Large Business Interruption Loan Scheme, which offers loans of up to £50 million to UK-based businesses with a turnover of over £45 million. Mr Kinnock said the cap needed to be lifted, otherwise the future of Tata Steel lay in the balance. Tata Steel employs more than 8,000 people in the UK, including around 4,000 at Port Talbot. A Government spokesman said: ‘The Government has put together a far-reaching package of support to help businesses through the coronavirus pandemic. ‘We continue to regularly engage with businesses across all sectors, including those in the steel industry.’

For the full story, click here


Asian Private Bank Clients Feel Pain on $10 Billion of Bond Bets After Crash

“Fixed maturity funds have caused huge problems for investors,” said Rahul Banerjee, an ex-Standard Chartered banker and founder of BondEvalue, a fintech firm that provides bond pricing services to investors. “Banks gave private banking investors leverage as high as 90%, which caused a lot of pain as investors had to cough up more money to fulfill margin calls.” There is still “a lot of pressure” in credit markets, which means that investors could face a repeat of the events of a few weeks ago, said Banerjee. Yield premiums on Asia junk dollar bonds hit the highest in at least a decade in March, before easing a bit this month, according to a Bloomberg Barclays index. But they have started coming back up in recent days after a historic tumble in oil prices triggered renewed risk aversion among investors. Barclays estimated last month that there’s more than $10 billion of fixed-maturity bonds funds hunting outstanding in Asia.

For the full story, click here


Big Banks Sued Over Smaller Bond Trades

Big banks including Bank of America Corp, Credit Suisse Group AG and Goldman Sachs Group Inc. were sued for conspiring to suppress corporate-bond trades of less than $1 million in par value at the expense of small investors. The antitrust lawsuit alleges that the banks worked together to restrain trading of “odd lots” of corporate bonds, smaller trades made mainly by individuals. Barclays Plc, Citigroup Inc., Deutsche Bank AG, JPMorgan Chase & Co., Morgan Stanley, Natwest Markets Securities Inc. and Wells Fargo & Co. were also named. “No reasonable economic justification explains the magnitude of the pricing disparity between odd-lot and round-lot trades,” according to the suit, filed Tuesday in federal court in Manhattan by an individual investor. While odd lots make up the bulk of corporate bond trades, the banks work together to keep spreads between the ask and bid prices wide, colluding to stifle competition, according to the suit. That forces investors to pay “substantially higher” trading costs than those who transact in larger, round lot trades — mostly institutional investors, the plaintiff says.

For the full story, click here


Bond Market Debates Deflation Ahead of FOMC

Bond investors are starting to debate whether the U.S. is heading into a deflationary spiral, even after trillions of dollars of stimulus to offset the pandemic-driven hit to growth. This year’s collapse in oil prices and the drumbeat of staggeringly weak economic data are putting the question front and center as the Federal Reserve meets this week. Ten-year breakeven rates, a proxy for the market’s average inflation expectations into 2030, have stabilized after slumping in March to the lowest since early 2009, following a brief spell below zero. They’re now around 1.1%, up from as low as 0.47% last month. Craig Pernick, head of fixed income for Chevy Chase Trust, sees no way for consumer spending to rebound over the next one or two years, leaving him “solidly” in the deflationary camp for now. On the other hand, Bill Merz, whose team oversees $180 billion at U.S. Bank Wealth Management, expects negative inflation readings to be short-lived. “We aren’t designing portfolios with the expectation of deflation,” Merz said. “However, longer-term high quality bonds, particularly long-term Treasuries, provide a solid deflation hedge.”

For the full story, click here


Top Gainers & Losers – 27-Apr-20*

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