The Weekly Market Color
Publication Date : Saturday, May 4, 2013
The Weekly Market Color
Last week was a week marked by records.

Last week was a week marked by records.

Apple tapped the bond markets with the largest non-bank bond deal in history, for a total deal size of $17 billion.

Stocks traded at record levels with the S&P 500 stock index trading, and closing, above the 1,600 threshold for the first time (the S&P 500 closed +2% higher on the week) while the Dow stock index also breached the 15,000 threshold intra-week.

Yields on U.S. Treasury bonds spiked higher (price and yield move inversely) as employment figures out of the U.S. confirmed that the economy added more jobs in April than forecast with the official unemployment rate dropping to a 4-year low of 7.5%.

And so, investors were happy to take on more risk, moving out of the relative safety of U.S. Treasury bonds and into equities and corporate bonds instead.

Adding fuel to the rally in addition to the payroll employment figures, the U.S. Federal Reserve hinted that it would keep an open-ended form of QE (quantitative easing) in place through the end of the year.

Not to be outdone, the ECB (European Central Bank) slashed interest rates to historically low levels, cutting its refinancing interest rate to a record low rate of 0.5%, and announcing that the ECB remains open to further action to help stimulate the European economy.

Given the backdrop of historically low interest rates and monetary expansion by Central Banks, it is not a surprise that the global markets keep on rallying, despite macroeconomic data that for the most part points to some underlying problems with the rosy outlook.

Persistent and structural unemployment remains a problem across both sides of the Atlantic, with the drop in the U.S. unemployment rate being attributed to more job-seekers dropping out of the employment search.

European stocks rallied in concert with U.S. equities with the FTSE 100 stock index closing +1.5% higher on the week.

Borsa Istanbul surged higher, closing +4.9% higher while Egypt closed a modest +0.6% higher.

In the Maghreb, Tunisia closed +1.8% higher while Morocco closed -0.5% lower on the week.

In sub-Saharan Africa, Nigeria surged higher to close +5.5% higher on the week while Kenya was up +1.2%.

In the GCC, Kuwait closed +1.9% higher with Saudi Arabia up +0.7%, while Qatar was up +1.8% higher and the UAE was up +2.6% higher.

Across Asia, the Japanese Nikkei was down -1.1% lower on the week while the Chinese Hang Seng index was up +1.3% higher.

Malaysia closed the week -0.7% lower while Indonesian equities closed the week -1.1% lower.

In the fixed income space, Apple’s bond issue took the cake.

AA+ rated Apple sold $17 billion debt in total in a multi-part, multi-tenor bond offering.

At the long end of the curve, Apple sold $5.5 billion of 10-year bonds at a yield of 2.4% and $3 billion of 30-year bonds at a yield of 3.85%.

At the short-end of the curve, Apple sold $2 billion of 5-year FRN (floating rate note) bonds at Libor + 25 basis points, $1.5 billion of 3-year fixed-rate bonds at a yield of 0.45%, and $4 billion of 5-year fixed rate bonds at a yield of 1%.

That Apple, which has seen its share price tumble recently amidst withering competition from Samsung, tapped the bond markets in this kind of size could indicate that we are beginning to approach a peak in corporate bond valuations.  

In Asia, Chinese CNOOC printed the largest USD-denominated Asian bond issuance since 2003.

CNOOC sold a total of $4 billion in a multiple tenor bond offering with 3, 5, 10, and 30 year maturities.

BB+ rated Turkish construction materials company Sisecam also tapped the markets, selling $500 million of 7 year debt at a yield of 4.25% in a private placement transaction.

BBB- rated Bahrain Telecom sold $650 million of 7 year bonds at a yield of 4.25%.

The Bahrain Telecom bonds performed relatively well in the secondary markets given the scarcity value; there are not a lot of MENA (Middle East and North Africa) telecom bonds outstanding.  

The markets were quiet in the Sukuk space.


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