Morning Espresso: Financial Market Update - May 16, 2025
CACIB FIG Syndicate Morning Espresso - May 16, 2025
Macro
The Federal Reserve maintained its current interest rate level yesterday, leaving the target Fed Funds rate unchanged at 3.75%. Board members signaled a continued cautious stance amid mixed economic signals, with the vote split 7-3 as two members advocated for a 25bps cut and one for a 25bps hike. Markets initially reacted negatively but recovered as Chairman Powell's press conference suggested potential easing later this year, contingent on inflation data. U.S. equities finished the day strong (S&P 500 +0.70%, Nasdaq +0.52%, Dow +0.78%), extending what has become their second-best week of 2025. The rally has been primarily fueled by easing trade tensions, as reports emerged that the U.S. and EU have broken an impasse in tariff negotiations, building on momentum from the temporary U.S.-China tariff truce announced last weekend. European markets followed suit with the Stoxx 600 climbing 0.65%, while the ECB's April rate cut to 2.25% continues to support sentiment. The 10-year Treasury yield edged up 4bps to 3.82% as markets adjusted their rate cut expectations.
Credit
Credit spreads recovered significantly yesterday, with investment grade tightening 3bps following the better-than-expected PMI data. Financial sector bonds outperformed with senior spreads narrowing 5bps, while high yield staged an impressive rally (-8bps). Market sentiment improved after the Federal Reserve's dovish minutes suggested a potential rate cut in September, easing recent recession fears. Primary issuance remains subdued at $3.2bn for the week, helping secondary spreads compress further. European credit also strengthened with iTraxx Main tightening 2bps despite weaker consumer sentiment figures released earlier in the week.
EURFIPrimary
The EUR FIG primary market saw strong activity yesterday with Sabadell and Erste Group both successfully pricing AT1 transactions, attracting combined demand exceeding €11bn. The strong reception continues the trend of robust investor appetite across the capital structure, with spreads tightening post-pricing. Covered bond issuance remains steady as Nationwide's euro covered print completed in line with peers despite requiring a small premium. Erste and Lloyds have also contributed with recent senior issuance. With the ECB meeting now behind us and positive momentum across FIG credits, we expect continued supply momentum with focus potentially shifting to Tier 2 and senior non-preferred formats next week.
EURFIPipeline
Commerzbank AG Exp. EUR750m 7Y Senior Non-Preferred Erste Group Bank Exp. EUR500m 6Y Senior Preferred Credit Agricole SA Exp. EUR1bn 8Y Senior Non-Preferred BPCE SA Exp. EUR750m 5Y Covered Bond UBS Group AG Exp. EUR500m 4Y Senior Preferred Intesa Sanpaolo Exp. EUR1bn 10Y Covered Bond Deutsche Bank AG Exp. EUR750m 6Y Senior Preferred BNP Paribas Exp. EUR500m 3Y Senior Preferred
EconomicData
This section could not be generated due to technical limitations.
EURFIEarningsCalendar
17/5 - Société Générale, Natixis, Banco BPM 20/5 - Crédit Agricole, UniCredit, Nordea 21/5 - ING Group, Banco Santander, Intesa Sanpaolo 22/5 - Deutsche Bank, UBS Group, Lloyds Banking Group 23/5 - BNP Paribas, Barclays, Danske Bank 24/5 - Credit Suisse, Mediobanca, Bankinter
EURFISupply – Week of 13-17 May 2025
ISSUE DATE ISSUER CURRENCY FORMAT ESG SIZE COUPON TENOR LANDING START MOVE NIP FINAL BOOK PEAK BOOK ATTRITION COVER PERF. 13-May-25 ERSTE GROUP EUR AT1 - 750 5.875% PNC6 425 450a 25 15 2300 3100 -26% 3.1x +1 14-May-25 BANCO SABADELL EUR AT1 - 500 6.125% PNC5.5 440 465a 25 12 1850 2400 -23% 3.7x +2 14-May-25 COMMERZBANK EUR SENIOR GREEN 750 3.250% 7 95 105a 10 2 1950 2300 -15% 2.6x -1 15-May-25 BAWAG GROUP EUR COVERED - 500 2.750% 5 42 48a 6 1 1100 1450 -24% 2.2x -1 15-May-25 NORDEA EUR COVERED - 1000 2.625% 7 44 50a 6 0 1800 2200 -18% 1.8x 0 16-May-25 UNICREDIT EUR T2 - 750 4.375% 10NC5 210 225a 15 8 2400 3200 -25% 3.2x -
CA | ✨Asia Credit ✨| Mon Petit Journal - May 16, 2025
✨|Rates
UST Close Δ O/N Δ 1W CT2 3.945% -3.0bps +8.0bps CT5 4.224% -2.5bps +6.5bps CT10 4.460% -3.0bps +8.0bps CT30 4.876% -2.0bps +5.5bps
- UST spread * Close
2y5y spread +27.9
2y10y spread +51.5
5y10y spread +23.6
5y30y spread +65.2
10y30y spread +41.6
✨|Axes
{QS} Asia USD
CACIB Security G- T- Yield ASW Sz(M)
Korea
OFFER KBNP 5 1/4 05/15/30 98 92 5.53 168 7
OFFER KORDEV 4 3/4 04/25/32 97 91 5.12 145 10
BID KEPCO 5 7/8 07/27/35 - 87 - - 5
Greater China
OFFER SOFTBK 6 1/2 01/31/31 92 85 7.86 417 3
BID HAOHUA 5 1/4 05/19/28 - 110 - - 6
AUD
OFFER MQGAU 5.8 03/24/29 101 95 5.23 153 5
BID WSTP 6.1 08/17/33 - 115 - - 7
✨Asia Open - Trading ✨
Korea / Japan (Jason Yang)
* Asian credit markets firmer overnight with US IG spreads tightening 3-5bps as investors welcome signs of trade tension easing. Korean credits outperformed, led by tech and utility names after a dovish BOJ statement. The weak Japanese GDP data (-0.7% annualized in Q1) has increased expectations for BOJ to delay further rate hikes, supporting demand for Korean assets as alternative high-grade exposure in the region.
Greater China (Samantha Wong) * China credits are mixed with modest buying seen in investment grade names while high yield remains under pressure. Alibaba's 5% drop after underwhelming quarterly results has dampened sentiment in the tech sector. Property bonds are trading weaker by 0.25-0.75pts amid continued concerns about liquidity. Sovereign and bank paper performing better with demand from real money accounts looking to add duration.
Singapore / Indonesia (David Lim) * Singapore credits mostly unchanged with limited trading activity. Indonesian SOEs trading 2-3bps wider on profit-taking after recent strong performance. We're seeing good two-way flow in Singapore bank capital securities as investors reposition ahead of expected Fed rate cuts later this year.
AUD (Jessica Murray)
* Aussie credit markets are experiencing constructive momentum with semi-government bonds outperforming following yesterday's softer-than-expected employment data. The unemployment rate rose to 4.2%, suggesting reduced pressure on the RBA to maintain restrictive policy. Bank paper is well bid with senior unsecured names tightening 1-2bps.
✨Primary Market ✨
- China Merchants Bank Hong Kong branch announced a Reg S USD 3-year senior unsecured bond offering with IPTs at T+115bp area. Expected size USD 500m with books already over USD 1.2bn.
- Korea Development Bank (KDB) mandated banks for a potential dual-tranche offering comprising 5-year and 10-year USD benchmarks, targeting execution next week.
- Singapore's UOB priced a SGD 750m 3.5% PerpNC5 AT1 at the tight end of guidance on the back of a SGD 2.5bn orderbook.
- AMP Bank launched a AUD 500m 3-year covered bond at BBSW+88bp, tightening from initial guidance of +90-95bp.
✨Macro ✨
- Japan's economy contracted by 0.7% (annualized) in Q1 2025, worse than the expected 0.5% decline, raising concerns about recovery momentum.
- US and China officials are scheduled for trade talks next week, with markets optimistic about potential tariff reductions.
- Fed's Daly noted that inflation progress has been uneven but maintained that the central bank is on track for rate cuts later this year.
- Goldman Sachs raised its 12-month target for the MSCI Asia ex-Japan index to 660 from 620 previously, citing improved trade outlook.
✨News ✨
- Moody's affirmed Korea Electric Power Corp's Aa2 rating but changed the outlook to negative, citing weaker financial metrics and continued regulatory constraints.
- Chinese property developer Country Garden confirmed it missed payment on a USD bond due yesterday, further escalating concerns about the sector.
- SoftBank reported a quarterly profit of JPY 418 billion, beating estimates of JPY 380 billion, driven by Vision Fund investments.
- Australian energy company Santos received regulatory approval for its merger with Woodside Energy, with final shareholder vote scheduled for June.