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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

Credit

US equities were slightly higher with the S&amp;P and Nasdaq up 0.4% and 0.6%. US non-farm payrolls disappointed with 49k jobs added in January vs expectations of 105k; the previous number was also revised lower from -140k to -227k. US 10Y Treasury yields eased on Friday’s from a high of over 1.18% to 1.16%. The US House approved a budget bill advancing Biden’s $1.9tn relief plan, which may go through Congress even without the Senate’s support. Europe’s FTSE and DAX were marginally lower while CAC and FTSEMIB were up 0.9% and 0.8%. US IG CDS spreads were 0.5bp tighter and HY was 3.6bp tighter. EU main CDS spreads tightened 0.4bp and crossover spreads tightened 1.6bp. Asia ex-Japan CDS spreads are 0.1bp tighter while Asian equities are up ~0.5% higher to start the week.

Macro; The Week That Was; Rating Changes; Talking Heads; Top Gainers & Losers

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Executive Summary: European bank AT1 significantly outperformed Asia as each EU benchmark Basel III bond tightened during the week. Concurrently, increased risk appetite resulted in performance across the credit continuum in Asia bank bonds. A steepening US Treasury yield curve and risk-on market sentiment drove bank credit spreads tighter, globally. Please see our <a href="https://www.smartkarma.com/insights/bank-macro-manifest-risk-rally-gathers-steam-as-bad-news-more-stimulus" target="_blank" data-smartkarma-citation="insights:47886" rel="noopener">Bank Macro Manifest: Risk Rally Gathers Steam as Bad News = More Stimulus</a> for more details.Europe’s AT1 performance further compressed option adjusted spreads between European AT1 and Asia financial institutions to 50bps inside 2019 levels. This begs the question of how much more spread compression is possible.Globally, <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit's (UCG IM)</a> 8% coupon 2024 callable note led AT1 and broader bank bond performance, tightening 102bps over the week. This outperformance coincided with positive risk asset sentiment following the announcement that former ECB President Mario Draghi was asked to form Italy’s next government. Investors may wish to consider what additional catalyst could drive spreads tighter. UniCredit is expected to report earnings on Thursday, 11 February.In Asia, Nanyang Commercial Bank led AT1 bond performance by tightening another 54bps on the week. Relative to <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia's (23 HK)</a> 5 5/8% coupon 2022 callable note, the Nanyang outperformance is beginning to look overdone. Please see <a href="https://www.smartkarma.com/insights/bank-credit-compass-credit-tourist-may-vacate-if-real-fundamentals-do-not-catch-up" target="_blank" rel="noopener">Bank Credit Compass: Credit Tourist May Vacate if Real Fundamentals Do Not Catch-Up</a> for more details.<a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" rel="noopener">State Bank of India's (SBIIN)</a> prediction of double-digit returns following results that were better than expectations, drove its shares to a 40% gain during the week. SBIIN’s credit was already there, in our view, but other India-headquartered bank credits may benefit.Meanwhile, in the broader Emerging Market (EM) Senior Unsecured HY area, Turkish bank bonds continued to catch-up with their higher rated EM peers with several notes tightening by +60bps over the week. Given the positive developments in Turkey over the last few weeks and the global risk-on environment, several of these banks continue to trade wide relative to most other EM banks.Market Outlook: Investors remain susceptible to management’s prophecies. Asset quality indicators may greatly underestimate the level of troubled debt due to continued forbearance, restructuring efforts and early-stage aging. This is driving provisioning costs lower than would be expected in a more normal operating environment. The value of these reports is significantly diminished for credit investors. Financial repression creates a market, which in its nature, is always a one-sided bet with the Fed / ECB/ BOJ. There is limited price discovery.  As such, credit value should remain driven by larger market forces.

Executive Summary: European bank AT1 significantly outperformed Asia as each EU benchmark Basel III bond tightened during the week. Concurrently, increased risk appetite resulted in performance across the credit continuum in Asia bank bonds. A steepening US Treasury yield curve and risk-on market sentiment drove bank credit spreads tighter, globally. Please see our Bank Macro Manifest: Risk Rally Gathers Steam as Bad News = More Stimulus for more details.Europe’s AT1 performance further compressed option adjusted spreads between European AT1 and Asia financial institutions to 50bps inside 2019 levels. This begs the question of how much more spread compression is possible.Globally, UniCredit's (UCG IM) 8% coupon 2024 callable note led AT1 and broader bank bond performance, tightening 102bps over the week. This outperformance coincided with positive risk asset sentiment following the announcement that former ECB President Mario Draghi was asked to form Italy’s next government. Investors may wish to consider what additional catalyst could drive spreads tighter. UniCredit is expected to report earnings on Thursday, 11 February.In Asia, Nanyang Commercial Bank led AT1 bond performance by tightening another 54bps on the week. Relative to Bank of East Asia's (23 HK) 5 5/8% coupon 2022 callable note, the Nanyang outperformance is beginning to look overdone. Please see Bank Credit Compass: Credit Tourist May Vacate if Real Fundamentals Do Not Catch-Up for more details.State Bank of India's (SBIIN) prediction of double-digit returns following results that were better than expectations, drove its shares to a 40% gain during the week. SBIIN’s credit was already there, in our view, but other India-headquartered bank credits may benefit.Meanwhile, in the broader Emerging Market (EM) Senior Unsecured HY area, Turkish bank bonds continued to catch-up with their higher rated EM peers with several notes tightening by +60bps over the week. Given the positive developments in Turkey over the last few weeks and the global risk-on environment, several of these banks continue to trade wide relative to most other EM banks.Market Outlook: Investors remain susceptible to management’s prophecies. Asset quality indicators may greatly underestimate the level of troubled debt due to continued forbearance, restructuring efforts and early-stage aging. This is driving provisioning costs lower than would be expected in a more normal operating environment. The value of these reports is significantly diminished for credit investors. Financial repression creates a market, which in its nature, is always a one-sided bet with the Fed / ECB/ BOJ. There is limited price discovery.  As such, credit value should remain driven by larger market forces.

Bank Credit Weekly: AT1 Outperformance in Risk-On Environment

The risk-on rally gathered steam as a lower than anticipated U.S. jobs report added to a confluence of pressures already driving the U.S. yield curve steeper. The jobs report added to the narrative that additional US federal stimulus is needed. This confirmed the risk-on sentiment.In addition to stimulus expectations, hedging activity in the swap market may also be driving rates higher as insurance companies immunize equity gains and short positioned investors grab protection. Ten-year and 30-year yields rose 10 and 14 basis points, respectively, week-on-week to end at 1.17% and 1.97%.Concurrently, carry considerations amid low repo rates are driving short-end rates lower. Excess liquidity and the expectation of even more liquidity aided in collapsing overnight interest rates and driving two-year yields to record lows. Investors that focus on high-quality short-term securities may be pushed further up the curve to grab yield.  This flood of cash could drive credit spreads even lower.Meanwhile, US Treasury supply prospects in the short term are dropping. The Treasury indicated that it would reduce its cash balances in half, to $800 billion by the end of March, followed by a further cut of $500 billion by the end of June. This should boost bank reserves sharply, depress money market rates and likely provide a boost to risk assets as investors reach further out the curve to remain invested.Upward pressure on the long-end combined with downward pressure on the short-end to steepen the Treasury curve materially. Bank stocks jumped in response to the weakness in long-end Treasuries and the steeper yield curve that resulted. Once again this showcases the high correlation between rates and equity value.In this environment, U.S. CCC-rated and Asia High Yield (HY) index spreads tightened. CCC’s jumped 64 basis points (bps) tighter week-on-week while Asia HY walked-in 14bps. US HY credit should have limited upside in a reflation scenario and a delay should benefit Asia-headquartered risk assets. Therefore, we wonder if we are witnessing the opposite.Market Outlook: The catalyst for a correction is outsized fiscal stimulus combined with overly accommodative monetary policy. Near-term, stimulus materially greater than $1 trillion may arrest short-end yield-compression. Short rates could rise, and this may not be bank valuation positive. Longer term, former Treasury Secretary Larry Summer’s warning on using valuable fiscal space may come back to haunt if inflation outpaces the recovery in credit fundamentals. This would not be EM credit valuation positive.

The risk-on rally gathered steam as a lower than anticipated U.S. jobs report added to a confluence of pressures already driving the U.S. yield curve steeper. The jobs report added to the narrative that additional US federal stimulus is needed. This confirmed the risk-on sentiment.In addition to stimulus expectations, hedging activity in the swap market may also be driving rates higher as insurance companies immunize equity gains and short positioned investors grab protection. Ten-year and 30-year yields rose 10 and 14 basis points, respectively, week-on-week to end at 1.17% and 1.97%.Concurrently, carry considerations amid low repo rates are driving short-end rates lower. Excess liquidity and the expectation of even more liquidity aided in collapsing overnight interest rates and driving two-year yields to record lows. Investors that focus on high-quality short-term securities may be pushed further up the curve to grab yield.  This flood of cash could drive credit spreads even lower.Meanwhile, US Treasury supply prospects in the short term are dropping. The Treasury indicated that it would reduce its cash balances in half, to $800 billion by the end of March, followed by a further cut of $500 billion by the end of June. This should boost bank reserves sharply, depress money market rates and likely provide a boost to risk assets as investors reach further out the curve to remain invested.Upward pressure on the long-end combined with downward pressure on the short-end to steepen the Treasury curve materially. Bank stocks jumped in response to the weakness in long-end Treasuries and the steeper yield curve that resulted. Once again this showcases the high correlation between rates and equity value.In this environment, U.S. CCC-rated and Asia High Yield (HY) index spreads tightened. CCC’s jumped 64 basis points (bps) tighter week-on-week while Asia HY walked-in 14bps. US HY credit should have limited upside in a reflation scenario and a delay should benefit Asia-headquartered risk assets. Therefore, we wonder if we are witnessing the opposite.Market Outlook: The catalyst for a correction is outsized fiscal stimulus combined with overly accommodative monetary policy. Near-term, stimulus materially greater than $1 trillion may arrest short-end yield-compression. Short rates could rise, and this may not be bank valuation positive. Longer term, former Treasury Secretary Larry Summer’s warning on using valuable fiscal space may come back to haunt if inflation outpaces the recovery in credit fundamentals. This would not be EM credit valuation positive.

Bank Macro Manifest: Risk Rally Gathers Steam as Bad News = More Stimulus

US markets saw another move higher as S&amp;P and Nasdaq were up 1.1% and 1.2%. US jobless claims dipped by 33k to 779k last week while expected progress towards passing President Biden’s $1.9trn fiscal relief bill helped keep sentiment positive. US Treasury yields firmed with the 5s30s at its steepest level since Oct 2015  (Term of the day: curve steepening, explained below) trading at 147.3bp. “Economic activity is going up and it is already going to be fairly strong… More stimulus just makes the already strong number stronger” said Tom Porcelli, chief US economist at RBC Capital Markets. In the Eurozone, Italy’s FTSE MIB outperformed, up 1.65% a day after former ECB chief Draghi agreed to try and form a new government. US IG CDS spreads were 1.3bp tighter and HY was 7bp tighter. EU main CDS spreads tightened 0.7bp and crossover spreads tightened 4bp. Asia ex-Japan CDS spreads are 0.2bp tighter while Asian equities are ~0.5% higher today.

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

S&amp;P and Nasdaq continued to climb higher, up 1.4% and 1.6% respectively. All sectors were in the green with financials and industrials rallying the most, up over 2% higher while the FAANGs continued to trade higher. According to CNN, US Senate Democrats have reportedly said that President Biden did not discuss lowering the $1.9tn size on the Covid relief package during a virtual meeting. US 10Y Treasury yields firmed 2bp. FTSE was up 0.8%, though it underperformed European indices with reports of the new Covid variant reducing vaccine efficacy while DAX and CAC were 1.6% and 1.9% higher. US IG CDS spreads were 2.2bp tighter and HY was 10.6bp tighter. EU main CDS spreads tightened 1.5bp and crossover spreads tightened 9.6bp. Asia ex-Japan CDS spreads are 1.2bp tighter while Asian equities are ~0.2% higher today.

IRFC, Pertamina Launch $ Bonds; Macro; Rating Changes; New Bond Issues; Talking Heads; Top Gainer...

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)

Macro; The Week That Was; Rating Changes; Talking Heads; Top Gainers & Losers

US equities were slightly higher with the S&P and Nasdaq up 0.4% and 0.6%. US non-farm payrolls disappointed with 49k jobs added in January vs...

BondEvalue

Bank Credit Weekly: AT1 Outperformance in Risk-On Environment

European bank AT1 significantly outperformed Asia as each EU Basel III AT1 note tightened. Concurrently, increased risk appetite drove performance...

Hank Calenti, CFA

Bank Macro Manifest: Risk Rally Gathers Steam as Bad News = More Stimulus

A confluence of pressures drove the U.S. yield curve steeper. Outsized stimulus combined with overly accommodative monetary policy is the catalyst...

Hank Calenti, CFA

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

US markets saw another move higher as S&P and Nasdaq were up 1.1% and 1.2%. US jobless claims dipped by 33k to 779k last week while expected...

BondEvalue

IRFC, Pertamina Launch $ Bonds; Macro; Rating Changes; New Bond Issues; Talking Heads; Top Gainer...

S&P and Nasdaq continued to climb higher, up 1.4% and 1.6% respectively. All sectors were in the green with financials and industrials rallying...

BondEvalue

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