Although global stocks ended the week higher for the most part, the underlying tone in the market was a little weaker than usual; this weakness was primarily felt in the fixed income space.
In a “flight to quality” the yield on the benchmark U.S. Treasury 10-year bond fell to its lowest level this year at 1.66% (4 basis points – bps – tighter on the week) as a government report showed that the U.S. economy grew at a slower pace than forecast.
U.S. gross domestic product (GDP) rose at a 2.5 percent rate in the 1st quarter, below economists’ estimates for a 3 percent gain.
That being said, global stocks rallied nevertheless on expectations that the European Central Bank will cut interest rates when it meets on May 2nd.
Furthermore, the U.S. economy’s inability to sustain faster growth rates means that Federal Reserve policy makers will likely affirm a pledge to keep buying bonds (in a program known as Quantitative Easing) after their May 1 meeting.
Chinese PMIs for the month of March were disappointing and underline that the Asian giant’s economic growth is losing steam.
Even as underlying economic fundamentals remain relatively soft globally, the global equity markets continue to power on, driven primarily by Central Bank liquidity.
The S&P 500 stock index closed +1.7% higher while in London the FTSE 100 closed +2.2% higher.
In Europe, the CAC 40 in France closed an eye-popping +4.3% higher with the German DAX closing +4.8% higher.
In Japan, the Nikkei powered ahead and closed +4.3% higher while Bursa Malaysia was more subdued, closing +0.3% higher as Jakarta closed -0.4% lower.
In Turkey, Borsa Istanbul was +2.5% higher with Kuwait +0.9% higher, Saudi Arabia was +0.8% higher, Qatar +2% higher, and the UAE out-performed everyone else to close +6.5% higher.
S&P upgraded UAE-based Emaar from BB to BB+, making it the first real estate player to get upgraded in Dubai, which provided a positive boost for Dubai assets in general.
Nigeria closed +0.5% higher while Kenya was -1.7% lower and Egypt was relatively flat at +0.2%.
In the fixed income space, on the new issue front, U.S. student-loan company Sallie Mae canceled a $225 million securitized bond deal after it could not muster sufficient demand.
The cancelation is notable because it is one of the first times since the revival in the bond markets that investors have balked at a proposed bond deal amid rising student-loan defaults.
Normally, in a hunt for yield amidst diminishing returns, investors have been pushed into all manner of riskier asset classes.
In the conventional space, BBB-rated Turkish Is Bankasi sold $750 million of 5 year denominated debt at a yield of 3.75%.
In the Sukuk space, Turkiye Finans (almost two-thirds owned by Saudi Arabia’s NCB) sold $500 million of a 5 year Murabaha-based Sukuk at a yield of 3.95%; the new issue was heavily oversubscribed.
Al Baraka Turk’s subordinated Sukuk is going to price this week with the initial price talk in the 8% context.
In the MDB space, AAA-rated African Development Bank sold $500 million of a 5 year tap of its existing 5 year deal at a price that is flat to mid-swaps.
AAA-rated International Bank for Reconstruction and Development (the World Bank) sold $250 million of a 1 year fixed rate bond at a yield of 0.2%.
The AAA-rated Microsoft Corporation sold $450 million of 5 year debt at a yield of 1%, $1 billion of 10 year debt at a yield of 2.375%, and $500 million of 30 year debt at a yield of 3.75%.
Goldman Sachs sold $1.25 billion of a 5 year floating rate note at Libor + 120 bps.
AA-rated Canadian Toronto Dominion Bank sold $1.5 billion of 5 year fixed rate debt at a yield of 1.4% while also selling $750 million of floating rate 5 year notes at Libor + 55 bps.
In sub-Saharan Africa, single B-rated Rwanda sold $400 million of 10 year debt at a yield of 6.875%.
In the secondary markets, paper has been trading a little weaker with the tone particularly felt in EM (emerging market) cash bonds. MENA held up relatively ok with the hunt for short dated carry bonds continuing.
As far as Africa is concerned, Rwanda’s new bond issue opened the question of what the right valuations for this space are as the new issue traded roughly ½ a point lower from the issue price.
Post Emaar’s upgrade by S&P, the bonds that were the most sought after were the: Dubai 43s, EBIUH 23s, and the Emaar 19s.
In related news, Saudi conglomerate Al Bayan Group became the first Saudi issuer to issue Sukuk paper denominated in Malaysian Ringgit, in a 3 year RM 200 million transaction.
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Yazar Abdullah Karataş