The yields of 10-year US Treasury continued to spike in October while Asiadollar Investment Grade spreads unchanged m-o-m: 10-year US Treasury yield breached 5% for the first time in October 2023 before falling back to 4.93% (+36 basis points m-o-m) as at Oct 31.
Meanwhile, Bloomberg Asia IG spreads remained unchanged m-o-m at 124 basis points. This was despite greater volatility in spreads this month, range-bound between 119 basis points (bps) and 129 bps, due to the heightened macroeconomic uncertainties and geopolitical concerns in the Middle East.
Going into November 2023, 10-year US Treasury yield fell considerably (–29 bps compared to Oct 31) to 4.64% as at Nov 6. A cooling US job market gives the Federal Reserve room to keep interest rates on hold in December and support market views that the hike is likely coming to an end.
Meanwhile, Asiadollar Investment Grade spreads improved as at Nov 6 to 118 bps compared to Oct 31 (124 bps) primarily due to rebounded US dollar notes of China Vanke (Vanke), which surged as much as 12 cents after the largest shareholder of Vanke, Shenzhen Metro Group (wholly owned by the State-owned Assets Supervision and Administration Commission of the Shenzhen government), expressed support for the builder in a legal and market-driven way if Vanke faced an extreme situation.
Shenzhen Metro Group will purchase some of Vanke’s urban renewal projects in Shenzhen with an estimated transaction amount of more than RMB10 billion ($1.9 billion) to revitalise the bulk assets and promote the liquidity of Vanke; and actively prepare the purchase of Vanke’s bonds in the open market at a suitable timing. The positive measures also lifted somewhat the US dollar bonds prices of other China property developers (such as Longfor Holdings and Gemdale Corp).
The Asiadollar space saw less activity in October 2023 with primary issuances of US$7.73 billion based on Asiadollar ex-Japan market per Bloomberg league tables and OCBC estimates, compared to September’s US$11.80 billion as corporates remain hesitant due to rising yields and geopolitical risks.
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Financial institutions were the largest issuer in October with Korea Development Bank pricing a total of US$2.0 billion of senior unsecured notes across four tranches (3Y floating, 3Y fixed, 5Y fixed, 10Y fixed rate notes); Industrial and Commercial Bank of China pricing a total of US$1.0 billion senior unsecured notes across two tranches (3Y floating and 3Y fixed rate notes); and Hana Bank, a high-grade Korean bank, pricing a US$500 million 5Y senior unsecured social bond. Meanwhile, Medco Energi Internasional, a high-yield Indonesian oil and gas company, priced a US$500 million 5.5NC2Y senior unsecured note.
China’s property sector
The Credit Derivatives Determinations Committee, where members comprise a group of banks and institutional investors, came to the decision that a failure-to-pay credit event has occurred in respect of Country Garden Holdings.
See also: 1H2024 outlook for Singapore credit: Bye or buy?
This comes after the company’s non-payment of interest on a US dollar bond on Oct 18 (end of the grace period), triggering credit default swap contracts tied to Country Garden’s debt. While Bloomberg reported recently that it has sighted a notice to bondholders from the trustee that the failure to pay interest constitutes an event of default, as of writing, creditors have not officially called the default.
Negative sentiment spilled over to other property names, affecting even the stronger rated China property developers. External rating actions were taken on three major Chinese developers that have long been perceived as stronger issuers. Vanke and Poly Developments and Holdings Group, both of which are investment grade and are mixedowned (partly owned by entities that are in turn state-owned), were downgraded by one notch. Gemdale Corp, which is already highyield, was downgraded by a further three notches into high-yield territory. Vanke’s VNKRLE 5.35% ‘24s (maturing in March 2024) and VNKRLE 4.2% ‘24s (mature June 2024) fell to 87 (–10 points m-o-m) and 74 (–20 points m-o-m) respectively in October.
This fall is a symbolic event for the China property sector as Vanke is often viewed as one of the strongest and safest property developers there, due to its solid credit fundamentals and shareholders background (27% owned by Shenzhen Metro, which is wholly owned by the State-owned Assets Supervision and Administration Commission of the Shenzhen government).
That said, Vanke’s bonds prices rebounded strongly on Nov 6 after its largest shareholder Shenzhen Metro explicitly expressed support for Vanke if it faced extreme situations. It is the first time the Chinese government has explicitly offered help for a Chinese property developer since the property crisis.
Singapore dollar credit market
Singapore dollar issuances in October dropped to $1.2 billion from $1.80 billion in September. October’s issues were largely driven by financial institutions. The largest issuer, Commerzbank, priced a $300 million 10.5YNC5.5 Tier 2 note at 6.5%. JPMorgan Chase Financial and Macquarie Bank priced $75 million 2Y senior unsecured notes at 4.1% and 4.23% cent respectively and both were likely private placements. Wing Tai Holdings W05 issued $100 million 5Y senior unsecured notes at 4.8%. Cagamas Global also issued a 1Y $150 million bond at 4.24%. CapitaLand Ascott Trust HMN issued a 4.5Y $100 million bond at 4.223%.
A number of REITs reported results in October 2023. In general, portfolio statistics for Singapore-based REITs remained stable in 3Q2023 with vacancy of office, retail and industrial assets in Singapore remaining healthy and low. Besides, positive portfolio rental reversion and higher net property income were reported by most Sing-REIT players. However, rising interest rates have somewhat impacted interest coverage. We saw interest coverage ratio for most of the REITs fell 0.1x–0.4x to the range of 2x–4x. Meanwhile, for the six REITs that reported results in October 2023, we observed that average reported aggregate leverage rose slightly by 37 bps q-o-q to 40.4%.
In the secondary market, the Singapore dollar credit market rose 0.29% m-o-m in October as all segments except Longer Tenors (>9 years) rose in the range of 0.2% to 0.7% m-o-m. The stronger performance of these segments was primarily due to steeper fall in the rates of shorter and belly tenors (–3 bps to –13 bps m-o-m) compared to longer tenors (–1 basis point m-o-m).
Chin Meng Tee, Andrew Wong, Ezien Hoo and Wong Hong Wei are credit analysts with OCBC
