Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: It may be time to take duration, at least through the summer. Swap spread trends suggest to us that interest rates may have peaked over the near term, or at least until the Fed decides to talk about talking about tapering its asset purchases. We do not anticipate this discussion before next year.US inflation hit its highest annualized rate since 1995 and, after a brief spike upwards, interest rates were no more volatile than in prior weeks without significant data announcements. In fact, the Treasury curve barely moved week-on-week while Fed Fund rate expectations rose slightly.Credit spreads continue to track interest rates with shorter-end securities outperforming on a total return basis, while intermediate four-to-five-year spreads outperformed on pure credit terms. There was consistent performance across geographies, across the curve and across bank bond asset classes. European bank credit continues to slightly outperform Asia, although this may be tempered as Bund rates rise.Spread compression is likely to remain driven by economic growth expectations with lower rated high yield securities having a higher beta to the economic recovery. Higher grade securities remain defensive and expensive from a total return perspective.In the primary market, a jumbo-sized bond by <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag" target="_blank" data-smartkarma-citation="entities:22253:1" rel="noopener">Credit Suisse (CSGN VX)</a> took issuance to almost US$11 billion for a second week in a row. Credit Suisse Group’s Senior Unsecured note priced in-line with its curve. <a href="https://www.smartkarma.com/entities/danske-bank-a-s" target="_blank" data-smartkarma-citation="entities:22336:1" rel="noopener">Danske Bank's (DANSKE DC)</a> Additional Tier 1 may be more interesting for investors.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Executive Summary: It may be time to take duration, at least through the summer. Swap spread trends suggest to us that interest rates may have peaked over the near term, or at least until the Fed decides to talk about talking about tapering its asset purchases. We do not anticipate this discussion before next year.US inflation hit its highest annualized rate since 1995 and, after a brief spike upwards, interest rates were no more volatile than in prior weeks without significant data announcements. In fact, the Treasury curve barely moved week-on-week while Fed Fund rate expectations rose slightly.Credit spreads continue to track interest rates with shorter-end securities outperforming on a total return basis, while intermediate four-to-five-year spreads outperformed on pure credit terms. There was consistent performance across geographies, across the curve and across bank bond asset classes. European bank credit continues to slightly outperform Asia, although this may be tempered as Bund rates rise.Spread compression is likely to remain driven by economic growth expectations with lower rated high yield securities having a higher beta to the economic recovery. Higher grade securities remain defensive and expensive from a total return perspective.In the primary market, a jumbo-sized bond by Credit Suisse (CSGN VX) took issuance to almost US$11 billion for a second week in a row. Credit Suisse Group’s Senior Unsecured note priced in-line with its curve. Danske Bank's (DANSKE DC) Additional Tier 1 may be more interesting for investors.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Bank Credit Weekly: Inflation Non-Event Suggests Time to Take Duration?

Bond market data and technology, BondEvalue

BondEvalue

Bond market data and technology

BondEvalue is a Singapore-based Fintech that specializes in bond market data and technology. The company's information services business offers bond market data on hard-currency corporate & sovereign bonds across Asia, Middle East, Europe and the Americas. The data, which includes bond prices, yields, news and analytics, is offered to end investors via interactive Mobile and Web Apps. Investors can sign up for a free trial of the service either via the company's website (https://bondevalue.com) or by downloading the BondEvalue Mobile App (http://onelink.to/wej7jq). BondEvalue is also developing an electronic bond exchange, BondbloX in Singapore that allows investors to trade bonds electronically in smaller sizes (US$1,000 or equivalent). For more information, visit https://www.bondblox.com/

Bond Market Data and Technology

S&amp;P rose 1.2% yesterday and Nasdaq was up 0.7%, slightly recovering losses in the prior few days. US 10Y yields had risen ~10bp to 1.70% on Wednesday in the aftermath of the inflation report , but cooled-off yesterday to 1.66%. Headline and Core CPI rose by 4.2% and 3% YoY, significantly above forecasts even after accounting for base effects causing a rout in equities. Despite the rise in inflation, Fed’s Vice-Chair Richard Clarida played down fears  citing transitory factors. Oil prices dropped 3% as the US pipeline reopened after the cyber attack after paying a $5mn ransom to the hackers. US IG CDS spreads tightened 1.5bp and HY spreads tightened 6.6bp. EU main and crossover spreads tightened 0.4bp and 1.8bp. Asian equity indices have started positive, up over 1% while Asia ex-Japan CDS spreads are 2.8bp wider.

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers & Losers

Wall Street closed lower on Monday as investors veered away from growth stocks on possible inflation fears. S&amp;P ended 1% lower yesterday after setting a new record on Friday while Nasdaq saw a drop of 2.5%. The drop was on the back of a selloff in tech stocks led by semiconductors companies. Among the losers were Tesla, which dropped 6.4% and Facebook, down 4.2%. Friday’s ransomware cyber-attack continues to paralyze the US’s largest fuel pipeline. US IG CDS spreads were 1.5bp wider and HY widened 4.9bp.  EU main and crossover CDS spreads were flat. Asian equity markets are following the US, off to a negative start, down over 1%. Asia ex-Japan CDS spreads were 0.2bp wider. Asian primary bond markets are at its busiest in over a month with 12 new bond deals today that includes names like Country Garden , Fosun, Studio City  and Vista Land .

12 New Deals Incl. COGARD, Fosun, Studio City; Macro; Rating Changes; New Issues; Talking Heads; ...

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

iShares China CNY Bond UCITS ETF / Equity Bottom-Up

<ul>
<li>
Over the first four months of 2021 the Xtrackers FTSE Vietnam Swap UCITS ETF, SPDR S&amp;P 500 ETF, SPDR Straits Times Index ETF, SPDR Dow Jones Industrial Average ETF and Nikko AM Singapore STI ETF were the strongest performers of SGX’s suite of 30 ETFs, averaging 13% total returns.  </li>
<li>
Of the five ETFs that were recipient to the highest net inflows over the four months, three were Fixed Income ETFs:  the ICBC CSOP FTSE Chinese Government Bond ETF, the iShares Barclays USD Asia High Yield Bond Index ETF and the ABF Singapore Bond Index Fund, which saw S$285 million of combined net inflows, 58% of the total net inflows.   </li>
<li>Combined AUM of the 30 ETFs is S$9.2 billion, up from S$5.5 billion 12 months ago. Equity and REIT ETFs have continued to represent 40% of the combined AUM. However, the share of Fixed Income ETF AUM within the total AUM has grown from 34% to 46%, while the share of Gold ETF AUM has declined from 27% to 16%. </li>
</ul>



Over the first four months of 2021 the Xtrackers FTSE Vietnam Swap UCITS ETF, SPDR S&amp;P 500 ETF, SPDR Straits Times Index ETF, SPDR Dow Jones Industrial Average ETF and Nikko AM Singapore STI ETF were the strongest performers of SGX’s suite of 30 ETFs, averaging 13% total returns.   

Of the five ETFs that were recipient to the highest net inflows over the four months, three were Fixed Income ETFs:  the ICBC CSOP FTSE Chinese Government Bond ETF, the iShares Barclays USD Asia High Yield Bond Index ETF and the ABF Singapore Bond Index Fund, which saw S$285 million of combined net inflows, 58% of the total net inflows.    
Combined AUM of the 30 ETFs is S$9.2 billion, up from S$5.5 billion 12 months ago. Equity and REIT ETFs have continued to represent 40% of the combined AUM. However, the share of Fixed Income ETF AUM within the total AUM has grown from 34% to 46%, while the share of Gold ETF AUM has declined from 27% to 16%. 


Equity ETFs Rank as Top YTD Performers, as Bond ETFs Capture Most Inflows 

S&amp;P ended up 0.7%, setting a new record while Nasdaq closed 0.9% higher with tech stocks rallying. US non-farm payrolls (Term of the Day, explained below) for April rose by just 266k vs. a forecast of 978k, and significantly lower to March’s reading of 770k. US 10Y Treasury yields rebounded to 1.59% after hitting a two month low of 1.47%. The 30Y yield also dropped to 2.16%, its lowest since March 1 before recovering to 2.29%. Friday also witnessed a ransomware cyber-attack on the largest fuel pipeline in US. A prolonged shutdown of the pipeline could result in a spike in the gasoline and diesel prices. US IG CDS spreads were 0.9bp tighter and HY tightened 3.3bp. EU main CDS spreads were 0.8bp tighter and crossover spreads tightened 3.2bp. Asian equity markets are off to a positive start, up ~0.5% while Asia ex-Japan CDS spreads were flat. It’s a busy Monday at the Asian primary markets with nine new dollar deals, including ones from Agile, KWG, CIFI, JSW Hydro and Cathay Pacific .

9 New $ Deals Incl. Agile, KWG, CIFI, JSW Hydro; Macro; Rating Changes; New Issues; Talking Heads...

Singapore

iShares Barclays USD Asia High Yield Bond Index ETF is an exchange-traded fund incorporated in Singapore. The Fund seeks to track the performance of the Bloomberg Barclays Capital USD Asia High Yield Bond Index.

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Asia High Yield Bond Index (AHYG SP)

Bank Credit Weekly: Inflation Non-Event Suggests Time to Take Duration?

Time to take duration? At the same time, high yield securities have a higher beta to the economy. As such, long duration, high yield may offer...

Hank Calenti, CFA

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers & Losers

S&P rose 1.2% yesterday and Nasdaq was up 0.7%, slightly recovering losses in the prior few days. US 10Y yields had risen ~10bp to 1.70% on...

BondEvalue

12 New Deals Incl. COGARD, Fosun, Studio City; Macro; Rating Changes; New Issues; Talking Heads; ...

Wall Street closed lower on Monday as investors veered away from growth stocks on possible inflation fears. S&P ended 1% lower yesterday after...

BondEvalue

Equity ETFs Rank as Top YTD Performers, as Bond ETFs Capture Most Inflows

Over the first four months of 2021 the Xtrackers FTSE Vietnam Swap UCITS ETF, SPDR S&P 500 ETF, SPDR Straits Times Index ETF, SPDR Dow Jones...

Singapore Exchange Ltd (SGX)

9 New $ Deals Incl. Agile, KWG, CIFI, JSW Hydro; Macro; Rating Changes; New Issues; Talking Heads...

S&P ended up 0.7%, setting a new record while Nasdaq closed 0.9% higher with tech stocks rallying. US non-farm payrolls (Term of the Day,...

BondEvalue

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