Bank Credit Compass: Asia’s November Performance and December Expectations

Bank Credit Weekly: New Equation Is Bad News = Buy

Société Générale AT1: Resolution or Resilience in the Retail Restructuring? Take Shorter Duration

Bank Credit Weekly: Virus Vs. Vaccine: Time to Sell the Caa-Bull?

Bank Credit Weekly: Election Goldilocks Priced-In as Growth Concerns Increase

Bank Credit Weekly: Vaccine Rally, Then Consolidation, Drives Outperformance & Turkey Vs Thai Banks

Gravity Works As WeWork Doesn't; Now Plan B

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

The risk-on wave caught a bid in Asia high yield markets this week while positive momentum in US Caa-rated credits slowed. Asia’s outperformance was likely due to more encouraging news out of China. Top financial regulators in China stated that they would provide reasonable and sufficient liquidity as they handle a recent series of corporate credit defaults.In the US, the lowest rated Caa-component continued to rally on expectations that a meaningful economic restart will be brought forward. Positive reactions to vaccine news have grown steadily smaller as favorable outcomes are increasingly priced into the markets. The question is whether a complete re-opening of the global economy is fully priced. We re-iterate that the vaccine and election outcome news appear to be fully priced. We have full bull. It may be time to sell the vaccine and the goldilocks election result via the Caa tranche.Optimism surrounding the planned designation of former Fed Chairperson Janet Yellen as the new Treasury Secretary fueled Treasury market moves. Investors were relieved that President-elect Biden is choosing market-friendly moderates to fill his cabinet positions, rather than more socialist bent progressives. The choice of Janel Yellen as Treasury Secretary was particularly welcome by bank investors both due to her prior experience and because Biden did not choose Elisabeth Warren for the role. Nonetheless, Senator Warren's antagonism of the financial industry may gain weight should the Senate swing to a Democratic majority in the Georgia election run-offs.Against this backdrop, Asia’s HY Senior Unsecured bank bonds outperformed, although almost all bank bond prices rose in Asia’s risk-on environment. <a href="https://www.smartkarma.com/entities/vietnam-prosperity-jsc-bank" target="_blank" data-smartkarma-citation="entities:26914:1" rel="noopener">Vietnam Prosperity Bank (VPB VN)</a> and <a href="https://www.smartkarma.com/entities/iifl-holdings-ltd" target="_blank" data-smartkarma-citation="entities:20197:1" rel="noopener">IIFL Finance (IIFL IN)</a>, a non-bank finance company headquartered in India, led this performance, tightening by 45 basis points (bps) and 49bps, respectively. We suspect that the tension between vaccine news and Coronavirus contagion will increase volatility amongst higher yielding bank bonds although we anticipate downward sloping saw-tooth spread tightening over the near term.   Amongst Asia’s Additional Tier 1 (AT1) bonds, the <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 (BNKEA)</a> complex continued to outperform, with the 2024 and 2022 first call bonds tightening by 29 and 24bps, respectively. We recently moved to Outperform, from Buy, on BNKEA’s inefficient capital securities. Please see <a href="https://www.smartkarma.com/insights/bank-of-east-asia-move-to-overweight-the-capital-inefficient-securities-from-buy" target="_blank" data-smartkarma-citation="insights:45652" rel="noopener">Move to Overweight the Capital Inefficient Securities, from Buy</a> for more details. In addition, <a href="https://www.smartkarma.com/entities/bangkok-bank-public-co-ltd" target="_blank" data-smartkarma-citation="entities:213:1" rel="noopener">Bangkok Bank Public (BBL TB)</a> continued to outperform its Thai-headquartered AT1 issuers by tightening 22bps while <a href="https://www.smartkarma.com/entities/tmb-bank-pcl" target="_blank" data-smartkarma-citation="entities:8090:1" rel="noopener">TMB Bank (TMB TB)</a> widened 2bps. Please see <a href="https://www.smartkarma.com/insights/bangkok-bank-s-new-at1-overweight-on-relative-value" target="_blank" data-smartkarma-citation="insights:43402" rel="noopener">Bangkok Bank’s New AT1 – Overweight on Relative Value</a> for our views. Finally, amongst Asia-centric banks, certain <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a> bonds have greatly outperformed over the last few weeks on expectations of a potential tender offer by the firm to buy-back the securities. Please see: <a href="https://www.smartkarma.com/insights/standard-chartered-legacy-tier-1-is-on-fire" target="_blank" data-smartkarma-citation="insights:45722" rel="noopener">Standard Chartered Legacy Tier 1 is on Fire</a> for more details.Market Outlook: Over the near term, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns are likely to weigh on the market in the coming weeks. Concerns that the recent surge in bullish sentiment raises the question of whether it is sustainable or if a correction may be around the corner, possibly with the final approval of various vaccine treatments. We are set-up for buy-the-rumor, sell-the-fact profit taking.

The risk-on wave caught a bid in Asia high yield markets this week while positive momentum in US Caa-rated credits slowed. Asia’s outperformance was likely due to more encouraging news out of China. Top financial regulators in China stated that they would provide reasonable and sufficient liquidity as they handle a recent series of corporate credit defaults.In the US, the lowest rated Caa-component continued to rally on expectations that a meaningful economic restart will be brought forward. Positive reactions to vaccine news have grown steadily smaller as favorable outcomes are increasingly priced into the markets. The question is whether a complete re-opening of the global economy is fully priced. We re-iterate that the vaccine and election outcome news appear to be fully priced. We have full bull. It may be time to sell the vaccine and the goldilocks election result via the Caa tranche.Optimism surrounding the planned designation of former Fed Chairperson Janet Yellen as the new Treasury Secretary fueled Treasury market moves. Investors were relieved that President-elect Biden is choosing market-friendly moderates to fill his cabinet positions, rather than more socialist bent progressives. The choice of Janel Yellen as Treasury Secretary was particularly welcome by bank investors both due to her prior experience and because Biden did not choose Elisabeth Warren for the role. Nonetheless, Senator Warren's antagonism of the financial industry may gain weight should the Senate swing to a Democratic majority in the Georgia election run-offs.Against this backdrop, Asia’s HY Senior Unsecured bank bonds outperformed, although almost all bank bond prices rose in Asia’s risk-on environment. Vietnam Prosperity Bank (VPB VN) and IIFL Finance (IIFL IN), a non-bank finance company headquartered in India, led this performance, tightening by 45 basis points (bps) and 49bps, respectively. We suspect that the tension between vaccine news and Coronavirus contagion will increase volatility amongst higher yielding bank bonds although we anticipate downward sloping saw-tooth spread tightening over the near term.   Amongst Asia’s Additional Tier 1 (AT1) bonds, the Bank of East Asia (BNKEA) complex continued to outperform, with the 2024 and 2022 first call bonds tightening by 29 and 24bps, respectively. We recently moved to Outperform, from Buy, on BNKEA’s inefficient capital securities. Please see Move to Overweight the Capital Inefficient Securities, from Buy for more details. In addition, Bangkok Bank Public (BBL TB) continued to outperform its Thai-headquartered AT1 issuers by tightening 22bps while TMB Bank (TMB TB) widened 2bps. Please see Bangkok Bank’s New AT1 – Overweight on Relative Value for our views. Finally, amongst Asia-centric banks, certain Standard Chartered (STAN LN) bonds have greatly outperformed over the last few weeks on expectations of a potential tender offer by the firm to buy-back the securities. Please see: Standard Chartered Legacy Tier 1 is on Fire for more details.Market Outlook: Over the near term, tension between longer-term optimism from vaccine driven economies and the shorter-term reality of increasing Coronavirus lockdowns are likely to weigh on the market in the coming weeks. Concerns that the recent surge in bullish sentiment raises the question of whether it is sustainable or if a correction may be around the corner, possibly with the final approval of various vaccine treatments. We are set-up for buy-the-rumor, sell-the-fact profit taking.

Bank Credit Weekly: Play Safe in Asia or Ride the US Bull?

Asia High Yield Bond Index

Bank Credit Weekly: Play Safe in Asia or Ride the US Bull?