The trade idea published on November 13th to buy The East Ohio Gas Company 3% 2050 bonds (D 50's, A) and sell Virginia Electric and Power Company 4.6% 2048 bonds (D 48's, A) has returned 41bps in 19 days as theD 50's tightened from of 161bps to 115bps while the D 48's have only gone from 128bps to 122bps.
The sharp movement in D 50's has in turn created a new opportunity against The Connecticut Light and Power Company 4% 2048 bonds (ES 48's, A+), which have traded 16bps tighter than the D 50's on average during the last 12 months and currently are 6bps wider (3.5 standard deviations). Holders of D 50's have the opportunity to take profits at 115bps and switch to ES 48's at 121bps.
Sharp widening in the credit spread of Natura Cosmeticos 5.375% 2023 bonds (NATURA 23's, BB) creates a reversion opportunity of 245bps against NMB US Holdings 7% 2026 bonds (MRFGBZ 26's, BB-). NATURA 23's have traded 115bps tighter than MRFGBZ 26's on average during the last 12 months, but while NATURA 23'S have widened by over 200bps in the last week MRFGBZ 26's have tightened by 180bps during the last month. The spread difference has therefore been inverted and NATURA 23's now trade 129bps over MRFGBZ 26's (2.48 standard deviations). Holders of MRFGBZ 26's have the opportunity to take profits at 248bps and switch into NATURA 23's at 377bps, 3 years shorter and 1 notch better rated.
Steep widening in ChemChina's subsidiaries has created a dislocation in their relative spreads. CNAC (HK) Finbridge Company Ltd 3.375% 2024 bonds (HAOHUA 24's, BBB) have gone from 173bps to 279bps in 2 weeks, while Bluestar Finance Holdings Ltd 3.375% 2024 bonds (CNB 24's, BBB) have widened from 190bps to 256bps. While over the last 12 months HAOHUA 24's have traded through CNBG 24's by an average of 8bps, they currently are 23bps wider (2.3 standard deviations).
Credit spread widening in Jersey Central Power Light Company 4.3% 2026 bods (FE 26's, BBB) during November makes them look cheap against Xcel Energy 3.3% 2025 bonds (XEL 25's, BBB+). While FE 26's have traded 24bps wider to XEL 25's on average in the last 12 months, the difference has increased to 96bps in the last 4 weeks. Holders of XEL 25's have the opportunity to increase their carry from 44bps to 140bps by switching to FE 26's, only 6 months longer in maturity and 1 notch lower in rating.
Tightening in Republic of Cote d'Ivoire 6.125% 2033 bonds (IVYCST 33's, B+) has created a dislocation against highly correlated Republic of South Africa 5.375% 2044 bonds (SOAF 44's, BB-). SOAF 44's have traded on average 15bps tighter than IVYCST 33's and are currently 58bps wider (2.3 standard deviations). Holders of IVYCST 33's have the opportunity to take profits at 405bps and switch into SOAF 44's at 463bps, with a potential compression of over 70bps where the spread difference return to the average.
Three Gorges Finance Ltd. 3.7% 2025 bonds (YANTZE 25'S, A+) have seen a sudden widening of over 20bps against the general tightening trend for comparable issuers. Katana identifies dislocations with 12 similar bonds in APAC.
The largest difference is observed against Tencent Holding Ltd 2.985% 2023 bonds (TENCNT 23's, A+). While YANTZE 25'S have traded 11bps wider on average during the last 12 months, in the last 2 weeks the difference has increased to 49bps (2.4 standard deviations). Holders of TENCNT 23's have the opportunity to take profits at 74bps and switch into YANTZE 25's at 122bps, maintaining exposure to A+ credit and extending maturity by 2 years.
Credit spread widening in Bluestar Finance Holdings Limited 6.25% perpetual bonds (CNBG Perps, BBB) make them look relatively expensive against Huarong Finance 2017 Co. 4% perpetual bonds (HRINTH Perps, BBB+). Both issuers are subsidiaries of Chinese State Owned Enterprises and count with their support. The CNBG Perps have traded 39bps through the HRINTH Perps on average during the last 12 months but have been widening in the last 2 weeks and currently trade 28bps over (3.4 standard deviations). Holders of HRINTH Perps have the opportunity to switch into the CNBG Perps increasing their carry from 284bps to 312bps and potentially monetise a spread compression of 68bps if the spread difference reverts to the historical average.
The credit spread of BBVA bonds tightened following the news on the sale of the US operations to PNC for $11.6bn and the merger talks with Banco Sabadell. The impact has been more significant for USD denominated bonds. Katana identifies 30 opportunities to sell BBVA USD bonds where the dislocation is over 2 standard deviations, while there are 14 similar opportunities for EUR bonds. We look at the BBVA USA 3.875% 2025 USD bonds (BCOMPS 25, BBB) against Santander Holdings USA 4.5% 2025 USD bonds (SANUSA 25's, BBB+), where the spread difference has been on average 1bps and has increased to 53bps (1.2 standard deviations). Holders of BCOMPS 25's have the opportunity to take profits at 88bps and switch into SANUSA 25's at 141bps.
The BBVA SA 0.75% 2025 EUR bonds (BBVASM 25's, A-) on the other hand have continued following the dynamics of European banks, tightening by about 20bps in the first 2 weeks of November and stabilising since then. The spread difference between Banco Santander 1.125% 2025 bonds (SANTAN 25's, A-) and BBVASM 25's is at 33bps, having been 23bps on average for the year.
Katana uncovers a dislocation in the curve of Banco Santander between the 3.125% 2027 bonds (SANTAN 27'S, BBB) and the 3.25% 2026 bonds (SANTAN 26'S, BBB). While both bonds have been on a tightening trend, SANTAN 27's have been lagging. SANTAN 27'S have traded on average 4bps wider during the year, but since mid-October the spread has been opening and is currently 11bps (2.8 standard deviations). Holders of SANTAN 26's have the opportunity to take profits at 118bps and switch into the SANTAN 27's at 128bps.
The dislocation between Turkey and its peer has had a material reversion since we bookmarked it 2 weeks ago. The spread between Republic of Turkey 5.125% 2028 bonds (TURKEY 28's, B) and Arab Republic of Egypt 7.6% 2029 bonds (EGYPT 29's, B) saw a compression of 106bps in 1 week, from 56bps on the day we publish the trade to -50bps on 11 November, and is now at -40bps.
The spread between TURKEY 28's and Hashemite Kingdom of Jordan 5.75% 2027 bonds (JORDAN 27's, B+) followed a similar pattern. The spread narrowed from 198bps to a minimum of 96bps and is currently at 101bps.
As spreads tighten, Katana uncovers a dislocation in the spread difference between Entergy Louisiana, LLC 4.2% 2048 (ETR 48's, A) and Virginia Electric and Power Company 3.8% 2047 (D 47's). Both bonds have traded flat to each other on average during the year but the D 48's have been tightening faster leaving the ETR 48's 20bps wider (2.3 standard deviations). Holders of D 47's have the opportunity to take profits at 127bps and switch into ETR 48's at 147bp also moving to a bond with a . a higher amount outstanding ($900m vs $550m).
The sharp tightening in Turkey sovereign bonds has created a dislocation in the curve. Katana uncovers a spike in the spread difference between the sovereign 4.489% Sukuk bonds issued by Hazine Mustesarligi Varlik Kiralama Anonim Sirketi due 2024 (TURKSK 24's, B) and Republic of Turkey 4.875% 2026 (TURKEY 26's, B). The TURKEY 26's have gone from over 600bps to 473bps during November, tightening faster than the TURKSK 24's which are only 80bps tighter than at the beginning of the month. Both sovereign obligations currently trade flat to each other, while the TURKSK 24's have on average traded 56bps through the TURKEY 26's (2.2 standard deviations).
The difference in z-spread between HollyFrontier Corporation 5.875% 2026 bonds (HFC 26's, BBB-) and Diamondback Energy 3.5% 2029 bonds (FANG 29's, BBB-) has widened from an average for the year of 46bps to 155bps (2.1 standard deviations). In late September both bonds were trading within 10-20bps of each other, but while since then HFC 26's have widened to 387bps, FANG 29's have tightened to 232bps. Holders of FANG 29's have the opportunity to pick up 155bps by switching to HFC 26's, equally rated and over 3 years shorter in maturity.
The difference in credit spread between The East Ohio Gas Company 3% 2050 bonds (D 50's, A) and Virginia Electric and Power Company 4.6% 2048 bonds (D 48's, A) has reached the highest level in the last 12 months. The subsidiaries of Dominion Energy have tightened during November, but the D 48's have moved significantly faster. While the D 50's have traded on average 8bps wider in the last 12 months, the current difference is 19bps, 3.1 standard deviations. Holders of D 48's have the opportunity to take profits at 128bps and switch to the D 50's at a spread of 147bps.
In a general tightening trend, the bonds issues by Merck & Co., Inc. have been lagging peers. Katana shows that their 2 7/20 bonds due 2040 (MRK 40's, A+) look cheap against other 17 bonds by healthcare issuers, while their 4% 2049 bonds (MRK 49's, A+) are cheap against 10.
The biggest dislocation for the the MRK 40's is with UnitedHealth Group Inc. 4 5/8 2035 bonds (UNH 35's, A). The difference in spread has oscillated around zero in the last 12 months, with MRK 40's trading 2bps tighter on average. In the last week the UNH 35's have tightened at a faster pace, leaving the MRK 40's trading 9bps wider (2.9 standard deviations from the mean). MRK 49's vs UNH 50's show a similar dynamic, with MRK 49's currently trading 6bps wider against an average of 5bps tighter for the last 12 months (2.9 standard deviations).
The difference in credit spread between Wells Fargo & Company 3 17/250 2041 bonds (WFC 41's, A) and JPMorgan Chase & Co. 4 17/20 2044 bonds (JPM 44's, A) is at its highest in the last 12 months. While both bonds have been on a tightening trend, the WFC 41's have been lagging the JPM 44's. The difference in spread, which has been oscillating around zero with WFC 41's trading on average 4bps wider, has increased to 21bps (2.6 standard deviations). Holders of JPM 44's have the opportunity to take profits at 121bps and switch to the shorter WFC 41's at 143bps. Both bonds are rated A.
Long-end technology bonds have been on a tightening trend during November. Katana uncovers that Qualcomm Inc. 3 1/4 2050 bonds (QCOM 50's, A-) have narrowed faster than peers and shows dislocations against 62 other bonds.
IBM Corp. 3 3/5 2039 bonds (IBM 39's, A) are the ones to switch into with the highest similarity. IBM 39's have traded 16bps over QCOM 50's on average in the last 12 months, while being 1 notch better rated and over 10 years shorter. With both bonds narrowing, the difference has increased to 36bps (2.5 standard deviations). Holders of QCOM 50's have the opportunity to take profits at 117bps and switch into IBM 39's at 153bps.
Following significant volatility since late September, Times China Holdings Limited 6 3/5 2023 bonds (TPHL 23's, B+) have tightened sharply, possibly a reaction to the company's offer to purchase the issuer's 6 1/4 2021 bonds. However, at a z-spread of 169bps, the TPHL 23's now trade 97bps tighter than Country Garden Holdings Company Limited 8% 2024 bonds (COGARD 24's, BBB-), against an average of 150bps wider during the last twelve months (2.2 standard deviations). The dislocation may could be an opportunity to take profits in TPHL 23's at 169bps and switch into COGARD 24's at 267bps, rated 4 notches higher.
Anheuser-Busch InBev Worldwide Inc. 4 7/20 2040 bonds (ABIBB 40's, BBB+) sharp tightening over the last week makes them look expensive vs peers. Katana uncovers 57 dislocations where ABIBB 40's are a sell signal, 27 of them more than 2 standard deviations from the corresponding means.
One of the top alternatives to buy are Philip Morris International Inc. 4 3/8 2041 bonds (PM 41's, A), which on average have traded 28bps tighter than ABIBB 40's in the last 12 months. Their z-spread has tightened at a slower pace, inverting the spread difference and now trading 6bps wider than ABIBB 40's, 2.5 standard deviations from the mean, while being 2 notches better rated.
Turkey sovereign bonds continued widening over the past weeks and currently show as being dislocated vs other sovereigns in the region. Katana uncovers 150 trade ideas where Turkey looks relatively cheap, with over 100 being at least 1 standard deviation from the mean. The majority of dislocations are against Egypt (122) and Jordan (22).
Katana highlights the largest dislocations in Republic of Turkey 5 1/8 2028 bonds (TURKEY 28's, B). The z-spread difference between TURKEY 28's and Arab Republic of Egypt 7 401/668 2029 (EGYPT 29's, B) has increased to 56bps, the largest in the last 12 months and 2 standard deviations from the average of -48bps.
The difference between TURKEY 28's and Hashemite Kingdom of Jordan 5 3/4 2027 bonds (JORDAN 27's, B+) has reached 198bps, against an average of 98bps (2 standard deviations).