Fallout from the recent oil price turmoil has weakened sentiment as US stocks fell the most in almost three weeks. The Dow Jones, S&P 500 and Nasdaq Composite fell 2.67%, 3.07% and 3.48% respectively. Treasuries were supported by safe haven demand. Asia ex-Japan IG CDS spreads widened 8bp to 125bp. Europe’s main and crossover CDS spreads widened 6.5bp and 48bp to 91.5bp and 555bp respectively. The US investment-grade CDS spread rose 4.5bp to 97.5bp. Asian markets are opening lower by 1%-2% this morning while US index futures are little changed. Asian corporates are rushing to the primary markets with 5 new dollar deals announced this morning. Chinese electronics company Xiaomi’s debut dollar bond, expected to be rated Baa2/BBB–/BBB, seems to have met with strong investor demand as the order book has exceeded $2bn already. The demand for high rated issuers is evident from the order books for BOC Aviation’s and ST Engineering’s 5-year bonds, which have exceeded $2.6bn and $1.7bn respectively (as of 12pm SGT).


New Bond Issues

  • Xiaomi $ 10yr @ T+340bp area
  • BOC Aviation $ 5yr @ T+330bp area
  • Qingdao City Construction Investment $ 3yr @ 4.4% area
  • ST Engineering $ 5yr @ T+160bp area
  • Xinhu Zhongbao $ 2yr11mth @ 4.5% area

Oman and Bahrain Sidelined by The Bond Market

A record amount of borrowing by Gulf Arab economies this month has underscored the divide between the region’s strongest and weakest sovereigns. Oman and Bahrain are all but shut out from bond funding, waiting for their yields to retreat before wading into the market. Bond sales this month by Qatar, Abu Dhabi and Saudi Arabia, which have single-A or double-A ratings, account for more than half of the amount raised by governments across the emerging world. “The current environment affords an opportunity to pick up a solid investment-grade sovereign at valuations that are attractive versus historical spread levels,” said Todd Schubert, Singapore-based head of fixed-income research at Bank of Singapore Ltd. “It will be tougher and costlier for Bahrain, and even more so for Oman.” Although no nation in the Gulf is immune to the historic collapse in oil prices and the coronavirus pandemic, Oman and Bahrain stand out for their precarious public finances and strained reserves.

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Fitch Downgrades Ten European Banks

10 Western European banking groups have been downgraded by Fitch amid the coronavirus outbreak, and the agency has given 95% of the lenders in its regional portfolio a “negative” outlook in its latest review. The downgraded banks include the Cooperative Bank, Close Brothers and Metro Bank in the U.K., Commerzbank in Germany, Sweden’s Swedbank, Gruppo Bancario Iccrea in Italy and Credit Europe Bank in the Netherlands and banking groups in Cyprus, Spain and Luxembourg. The limited number of downgrades, 10 in all, shows that most Western European banks went into the crisis with some headroom in their ratings, Fitch noted. Those that were downgraded are “weaker banks, or banks that have to take action which will be much more difficult now,” Scarafia told CNBC’s “Squawk Box Europe.”

For the full story, click here


S&P Downgrades Hertz And Avis

S&P downgraded Hertz Global Holdings Inc. to B- from B+ and downgraded Avis Budget Group Inc. to B+ from BB, with ratings for both remaining on CreditWatch. During a severe travel downturn in the coronavirus pandemic, S&P expects the companies to reduce their fleets by canceling new vehicle orders, but expects they will “encounter difficulties” amid a weak used car market.

India’s Bonds Favored Over Indonesia’s – JPMorgan

India’s domestic bonds have handed investors a loss of nearly 2 percent in dollar terms in 2020 amid an emerging-market rout, albeit better than the decline of more than 11 percent for Indonesia, according to Bloomberg Barclays indexes. For oil-importing India, the implosion in Brent crude oil prices this year will give Prime Minister Narendra Modi’s government leeway to heal an economy hurt by virus lockdowns. The Indian rupee has also fared better than Indonesia’s rupiah, Asia’s worst performer this year. Markets are pricing Indonesian debt as riskier based on credit-default swaps even though it’s rated one level higher than India at BBB by both S&P and Fitch. Indonesia’s local bond market, 32 percent-owned by foreign investors, is turning into a liability, according to Duncan Tan, currency and rates strategist in Singapore at DBS Group Holdings Ltd. Foreign participation in India’s market, by contrast, is limited by quotas.

For the full story, click here

Facebook buys $5.7bn stake in India’s Reliance Jio

The world’s largest social media company on Tuesday announced the purchase of almost 10 per cent of the heavily indebted Reliance Jio, whose cut-price mobile internet service has attracted 388 million Indian users since its birth in 2016. Facebook said the deal — its largest single investment in another company aside from its acquisitions — meant it was now the largest minority shareholder in the Indian telecoms group and marked its “commitment to India”. In a blog post, Facebook said the two companies were focused on a partnership between JioMart, Jio’s newly launched ecommerce platform, and WhatsApp, the Facebook messaging service that has 400m users in India. WhatsApp is also poised to roll out a payments service in the region, pending approval from the Indian government.

For the full story, click here


Oil Rout Brings Stock Market Rally Into Question

Since late March, stock markets and riskier bits of the bond market have been rallying, dragged out of the depths of despair by heavy-hitting central banks. The US Federal Reserve has pledged to buy a huge range of bonds, and is even supporting the high-yield debt market. This pulls down bond yields and encourages investors to snap up equities, which they have duly done. The Fed is not, however, buying oil. The fall in oil is one of the markets’ simplest, cleanest ways of saying that the global economy is in deep distress, and that manufacturers and airlines and households are not expecting to get back to business any time soon. Anyone still buying the dip in risky assets, and refusing to hear the argument for another leg lower, should listen out for the dull thud of oil traders banging their heads on their desks.

For the full story, click here


Top Gainers & Losers – 22-Apr-20*

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