Morning Espresso: Financial Market Update - May 17, 2025
CACIB FIG Syndicate Morning Espresso - May 17, 2025
Macro
Moody's downgraded the United States credit rating yesterday, citing escalating government debt concerns, triggering a late-session market decline as bond yields climbed. The downgrade comes at a sensitive moment as markets had been rallying on improved US-China trade relations earlier this week. The S&P 500 fell 0.8% after the announcement, reversing its positive trajectory and ending the day in negative territory. In Europe, the ECB's April rate cut (its seventh in 12 months) continues to support sentiment despite the US downgrade, with the deposit facility rate now at 2.25%, down from 4% in mid-2023. Trading volume remained elevated with 17.9 billion shares changing hands on US exchanges, above the 16.8 billion 20-day average. On the corporate front, Cisco Systems advanced on strong forward guidance while UnitedHealth tumbled following reports of a criminal investigation. The Dow has still gained 2.3% month-to-date despite yesterday's selloff, with the Nasdaq up 3.7% in May, reflecting the market's resilience amid ongoing trade negotiations and monetary policy normalization.
Credit
Credit spreads tightened markedly yesterday amid improved sentiment following the U.S.-China trade détente. Investment grade spreads contracted by 4bps, with financials outperforming (-6bps) as bank earnings exceeded expectations. High yield exhibited even stronger performance, with spreads narrowing by 13bps to 448bps, the tightest level since mid-March. This rally comes despite Moody's recent sovereign concerns, as investors focused instead on trade developments and moderating inflation indicators. Primary market activity has resumed after last week's pause, with $4.5bn of new issuance priced yesterday at the tight end of guidance and showing solid 2.4x oversubscription.
EURFIPrimary
The EUR FIG primary market saw modest activity this week, with Crédit Agricole pricing a €750m 7-year non-preferred senior at MS+95bps, tightening from initial guidance of MS+115bps on strong demand (3.4x covered). Deutsche Bank also tapped the market with a €500m 10-year Tier 2 at 4.75%, drawing €1.7bn in orders. Market sentiment remains constructive following the recent US-China tariff truce, though spreads have widened marginally. Covered bond issuance has slowed as issuers await more stable rate conditions, with several banks reported to be preparing post-weekend transactions. Further ECB rate cuts expected in H2 2025 continue to support the unsecured FIG market.
EURFIPipeline
ING Exp. EUR750m 7Y Senior Santander Exp. EUR1bn 5Y Covered Société Générale Exp. EUR500m 6Y Senior Non-Preferred SBAB Exp. EUR500m 5Y Senior Credito Emiliano Exp. EUR300m 10Y Tier 2 Raiffeisen Croatia Exp. EUR400m 4Y Senior Capital One Exp. EUR750m 3Y Senior
EconomicData
19/5 – US Housing Starts, Eurozone Consumer Confidence 20/5 – UK Inflation, Japan Trade Balance 21/5 – US FOMC Meeting Minutes, UK Retail Sales, Eurozone PMI 22/5 – US Jobless Claims, Japan CPI 23/5 – US Durable Goods Orders, Germany GDP (Final) 26/5 – US New Home Sales, China Industrial Production 27/5 – US Consumer Confidence, UK Nationwide Housing Prices
EURFIEarningsCalendar
20/5 - BNP Paribas 21/5 - Finance of America Companies 22/5 - Commerzbank, UBS 23/5 - Deutsche Bank, Santander 24/5 - Credit Suisse, Societe Generale 27/5 - ING Group, Intesa Sanpaolo 28/5 - HSBC, Barclays 29/5 - Lloyds Banking Group, UniCredit 30/5 - American International Group
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 DANSKE BANK EUR SENIOR GREEN 750 2.875% 6NC5 75 85a 10 2 1850 2100 -12% 2.5x -1
14-May-25 BNP PARIBAS EUR T2 - 1000 3.375% 10NC5 120 130a 10 5 2700 3500 -23% 3.5x +1
14-May-25 COMMERZBANK EUR COVERED - 500 2.500% 5 35 42a 7 1 1500 1700 -12% 3.0x 0
15-May-25 UNICREDIT EUR AT1 - 750 5.875% PNC6 375 395a 20 7 3200 4500 -29% 6.0x +2
15-May-25 CREDIT AGRICOLE EUR SENIOR SLB 1250 2.750% 7 70 78a 8 3 2100 2450 -14% 2.0x -2
16-May-25 BBVA EUR COVERED GREEN 1000 2.375% 7 40 47a 7 0 2350 2800 -16% 2.8x -1
16-May-25 ING BANK EUR SENIOR - 750 2.625% 5NC4 65 73a 8 2 1950 2200 -11% 2.9x 0
CA | ✨Asia Credit ✨| Mon Petit Journal - May 17, 2025
✨|Rates
UST Close Δ O/N Δ 1W CT2 4.011% +0.8bps +4.8bps CT5 4.240% +2.1bps +6.3bps CT10 4.480% +2.4bps +3.3bps CT30 4.900% +1.5bps +5.7bps
- UST spread * Close
2y5y spread +22.9
2y10y spread +46.9
5y10y spread +24.0
5y30y spread +66.0
10y30y spread +42.0
✨|Axes
{QS} Asia USD
CACIB Security G- T- Yield ASW Sz(M)
Korea
OFFER KOREAT 5 3/4 05/15/33 109 103 5.42 168 3
BID LGELEC 5 1/4 02/12/29 95 91 4.87 128 5
OFFER KORGAS 6 1/8 05/10/42 - 72 6.02 142 4
Greater China
BID AGRBK 2 1/4 04/22/26 32 55 4.38 32 8
OFFER BABA 4 3/8 09/15/34 92 89 5.18 138 2.5
BID ICBCAS 4 1/2 10/23/29 78 74 4.95 102 7
Singapore
OFFER OLAMSP 5 3/8 01/24/26 107 102 5.15 122 3.5
BID UOBSP 4 1/4 PERP - - 5.32 - 2
OFFER OCBCSP 3 7/8 08/19/30 81 76 4.83 95 6
{qS} AUD CACIB Security Px/Spd Sz(M) BID NAB 4.85 PERP 91.75 1 OFFER NAB 4.5 05/12/30 102.25 3 BID ANZAU 5.1 03/24/31 103.80 2.5
✨Asia Open - Trading ✨
Korea / Japan (Jason Yang)
* Trade tensions easing with the US-UK deal has provided positive sentiment for Asian credit, with Korean names 2-4bps tighter. Japanese megabanks are showing particular strength on forecasts of record profits despite tariff uncertainty.
* The BOJ's bond taper plans face headwinds due to fiscal concerns, but Japan's 5-year CDS has narrowed to 21bps from 25bps previously.
* Seeing good two-way flows in Korean autos and TMT credits while Japanese financials gathering solid real money interest from offshore accounts.
* Expect continued outperformance in high-quality names but limited further tightening in lower beta credits that have already rallied significantly.
Greater China Fins (Harold Lam)
* Chinese bank bonds saw strong momentum yesterday with spreads tightening 3-5bps across the curve, led by Tier 2 issues from the Big Four banks.
* AT1s from ICBC and CCB particularly well bid with retail buyers from Singapore and Taiwan returning to the market after recent market stabilization.
* Seeing improved sentiment after recent government measures to ease property sector concerns, though regional bank credits still trading with caution.
* Expect continued investor discrimination between top-tier and smaller regional banks as credit differentiation theme persists.
Greater China Corps (Michelle Lin) * Tech names leading the recovery with spreads 3-7bps tighter, particularly in dollar bonds from Alibaba and Meituan which saw strong buying from US-based accounts. * Property sector showing mixed performance - investment grade developers 2-3bps tighter while high-yield names still facing volatility with limited liquidity. * $600bn corporate dollar bond market showing signs of resurgence with tech giants expected to lead new issuance in coming months. * Sector rotation increasingly evident as investors reduce property exposure in favor of technology and consumer names.
Singapore (Ravi Menon)
* Singapore credits underperforming broader Asian markets slightly after GDP growth data for Q1 came in below expectations at 3.8% vs 4.3% forecast.
* Seeing modest outflows from Singapore REITs as investors position for MAS monetary easing with 2-3 rate cuts potentially on the horizon in 2025.
* Financial sector credits holding up better with OCBC and DBS senior paper 1-2bps tighter amid strong liquidity flows.
* Economic growth forecast downgrade to 0-2% (from 1-3%) creating some near-term caution among investors, particularly in cyclical sectors.
AUD (Sarah Collins)
* Australian corporate bonds experiencing modest rally ahead of expected RBA rate cut on May 20, with markets pricing in a 25bp reduction.
* Bank senior unsecured paper outperforming with spreads 3-5bps tighter, while resource sector credits lagging with mixed performance.
* Offshore demand continues to strengthen across high-grade AUD credits, particularly from Asian insurers looking for yield pickup.
* Recent strength in the AUD currency creating favorable entry points for foreign investors in the local credit market.
AUD - Rates (David Thornton)
* Bond yields declining across the curve with 2-year and 10-year yields down 7bps and 5bps respectively as markets fully price in upcoming RBA easing.
* Swap spreads widening slightly as corporate hedging activity increases ahead of potential new issuance.
* US Treasury rally following weaker economic data adding tailwinds to Australian government bonds, though US Moody's downgrade creating some cross-current volatility.
* Curve steepening bias remains intact with markets now pricing two additional rate cuts after May's expected move.
✨ Asia/EM Primary ✨
- 15th May MANDATE: China Construction Bank USD 144A/REG S Tier 2 10NC5 Notes MANDATE: Bank Rakyat Indonesia (BRI) USD 144A/REG S Sustainability Sukuk 5Y Notes MANDATE: Hyundai Capital Services USD 144A/REG S Senior 3Y/5Y Notes MANDATE: Pertamina Geothermal Energy USD 144A/REG S Green 10Y Notes
- 16th May PRICED: Indonesia (Republic of) $1.5bn 10Y Sukuk at 5.15%, IPT 5.375% area PRICED: DBS Group Holdings $1bn 3Y FRN at SOFR+82bps, IPT SOFR+100bps area PRICED: China Development Bank $500m 3Y at 4.25%, IPT 4.4% area PRICED: Medco Energi $650m 7NC3 Senior Notes at 7.75%, IPT 8.125% area
- 17th May MANDATE: SK Hynix USD 144A/REG S Senior 5Y/10Y Green Notes MANDATE: State Bank of India USD 144A/REG S Senior 5Y Notes PRICED: Vingroup JSC $400m 5NC2 at 9.125%, IPT 9.5% area
✨ Macro News ✨
- China's central bank announced a comprehensive stimulus package to counter economic headwinds, cutting the seven-day reverse repurchase rate by 10 basis points to 1.40% and reducing the reserve requirement ratio (RRR) by 50 basis points to 6.2%, effective May 15. This move will inject approximately 1 trillion yuan ($138.5 billion) of liquidity into the economy.
- China's Q1 2025 GDP growth surprised to the upside at 5.4%, beating analyst expectations of 5.1%. However, quarter-on-quarter momentum slowed to 1.2% from 1.6% in the previous quarter, with full-year 2025 growth now projected at 4.5% according to consensus forecasts, below the official target of 5.0%.
- The Bank of Japan maintained its current interest rate levels at its latest meeting, with Governor Kazuo Ueda acknowledging that the timeline for inflation to converge toward the 2% target has been "pushed back somewhat." The central bank revised growth forecasts downward, citing uncertainties related to US tariffs and their impact on Japanese exports.
- India's economy expanded by 6.2% in October-December 2024, with the government projecting full fiscal year 2024-25 growth at 6.5%, slightly higher than its initial 6.4% estimate. Government spending rose 8.3% and private consumption jumped 6.9% year-on-year, though manufacturing sector weakness persists.
- The United States and China reached a temporary trade détente, agreeing to reduce tariffs for 90 days. US tariffs on Chinese goods will decrease from 145% to 30%, while China will lower tariffs on US products from 125% to 10%. Investment banks have raised growth outlooks for China following this surprise agreement.
- Growth forecasts for ASEAN countries have been downgraded to 4.1% for 2025 due to external shocks and weakening domestic demand in several economies. This moderation comes as the broader outlook for developing Asia and the Pacific has been revised to 4.9% in 2025 and 4.7% in 2026.
- Inflation across developing Asia is expected to moderate to 2.3% in 2025 and 2.2% in 2026 as global commodity prices decline further, providing room for many regional central banks to ease monetary policy in the coming months.
✨ Credit News ✨ This section could not be generated due to technical limitations.