Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Roses are red, liquidity rings true. Although we agree with Guggenheim Partners chief investment officer Scott Minerd’s perspective that “yields are low, spreads are tight and risk assets remain priced to perfection”, we believe that liquidity rules. As such, despite increasing evidence of regional economic decline from the coronavirus, credit markets remained broadly positive. Weak Greek banks continue to access the primary market at attractive terms while previously defaulted institutions such as Iceland’s Kaupthing, now Arion Bank, get ready to issue Additional Tier 1 debt. Even the Royal Bank of Scotland will be no more as it rebrands itself as NatWest. Although the market is less attractive, we believe that pockets of opportunity remain.Amongst Asia-headquartered banks, Yes Bank’s US$-bond outperformed all others by tightening 161bps during the week. We see further upside potential in this credit. Meanwhile, investors rotated out of higher-beta Additional Tier 1 (AT1) bonds of mainland China banks and ventured into callable and bullet maturity Tier 2 instruments of the same institutions. This suggests increasing risk-aversion, but it does not suggest risk-avoidance, and this is a theme that may remain until coronavirus uncertainty fades.We are splitting the credit weekly in half to hopefully give a more insightful perspective into market movements concerning the banks that we follow. This will also allow for a deeper analysis of new issue market conditions and their implications for secondary market trading.  We note that there may not be new issuance activity in some weeks and, as such, that note will become more of an occasional report, although it may appear almost weekly.

Roses are red, liquidity rings true. Although we agree with Guggenheim Partners chief investment officer Scott Minerd’s perspective that “yields are low, spreads are tight and risk assets remain priced to perfection”, we believe that liquidity rules. As such, despite increasing evidence of regional economic decline from the coronavirus, credit markets remained broadly positive. Weak Greek banks continue to access the primary market at attractive terms while previously defaulted institutions such as Iceland’s Kaupthing, now Arion Bank, get ready to issue Additional Tier 1 debt. Even the Royal Bank of Scotland will be no more as it rebrands itself as NatWest. Although the market is less attractive, we believe that pockets of opportunity remain.Amongst Asia-headquartered banks, Yes Bank’s US$-bond outperformed all others by tightening 161bps during the week. We see further upside potential in this credit. Meanwhile, investors rotated out of higher-beta Additional Tier 1 (AT1) bonds of mainland China banks and ventured into callable and bullet maturity Tier 2 instruments of the same institutions. This suggests increasing risk-aversion, but it does not suggest risk-avoidance, and this is a theme that may remain until coronavirus uncertainty fades.We are splitting the credit weekly in half to hopefully give a more insightful perspective into market movements concerning the banks that we follow. This will also allow for a deeper analysis of new issue market conditions and their implications for secondary market trading.  We note that there may not be new issuance activity in some weeks and, as such, that note will become more of an occasional report, although it may appear almost weekly.

Asian Bank HY Credit Weekly: Pockets of Opportunity

Asia High Yield Bond Index

Asian Bank HY Credit Weekly: Pockets of Opportunity