Anita Yadav - Head of Fixed Income Research
Published Date: 03 June 2018
Stronger than expected non-farm payrolls data out of the US did little to counterbalance the rising fears of trade wars. Safe haven bid saw treasuries gaining ground during the week with yields on the 2y UST, 5y UST and 10y UST closing at 2.47% (flat w-o-w), 2.74% (-2bps w-o-w) and 2.90% (-3 bps w-o-w).
It was a volatile week for European fixed income markets as sentiment ebbed and flowed on political developments. Yield on 10y bunds ended the week at 0.38% after having dropped to as low as 0.26% at one point during the week. The move in bunds was concurrent on the move in 10y Italian government bond yields which ended the week at 2.69% after having touched a high of 3.16% during the week. Overall, the 10y bunds closed -2 bps lower w-o-w and 10y Italian bond yields closed +23 bps higher w-o-w.
Muted risk appetite in the face of strengthening USD kept emerging market bonds under pressure. The YTW on the Bloomberg Barclays EM USD Aggregate index rose 13 bps w-o-w to 5.60%. India’s 10y bond yields rose +5 bps to 7.84% as stronger than expected GDP data raises risks of an interest rate hike from the Reserve Bank of India earlier than anticipated. The GDP data showed that the economy grew at 7.7% in Q4 FY 2018. The RBI is scheduled to meet later this week.
Regional bonds closed largely unchanged as fall in benchmark yields was offset by rising credit spreads. The YTW on the Bloomberg Barclays GCC Credit and High Yield index rose +2 bps to 4.61% and credit spreads widened by 4 bps to 191 bps.
S&P affirmed Bahrain’s ratings at B+ with stable outlook. The rating agency said that the government’s access to international capital markets has proven crucial for replenishing Bahrain’s reserves. It also added it sees financial backing for Bahrain’s exchange rate arrangement from neighbouring countries being forthcoming. S&P forecasts Bahrain’s real economic growth averaging 2.5% over 2018-2021 backed by GCC-funded infrastructure investment. Separately, the IMF in its comments on Bahrain said that the country should consider implementing corporate income tax to shore up its finances as rising interest rates affect its ability to borrow. The 5y CDS for Bahrain has widened 78bps to 375 bps since the start of May 2018. Last week, Bahrain 21s dropped 1 point to close at USD 97.3 and Bahrain 29s lost 3 points to close at USD 85.3.
According to reports, EA Partners failed to sell debt obligations of Air Berlin and Alitalia in EA Partners II bond due in June 2021. The remarketing agency will restart auction of claims with deadline of bids on 11 June 2018. EA Partners II is currently trading at USD 70.28 (-1 point) and EA Partners I is trading at USD 72.52 (-1 point).
Italian political crisis deepened overnight
Relative Value in Sukuk : May 2018