Tuesday April 19

Stocks rise as they continue to reach new highs for the year. The S&P500 rose 0.3% to 2,100 and the Dow Jones rose 0.3% to 18,053. Oil prices continued to rise after investors priced in an oil worker’s strike in Kuwait and the potential supply disruptions that may come as a result. Brent crude oil rose 2% to $43.60 however WTI eased back slightly to $40.79. The US dollar was stronger against most currencies. The dollar rose slightly against the euro to $1.358 and 0.05% against the Japanese yen to Y109.27. Goldman Sachs reported earnings today which beat expectations on an EPS basis. The KBW Bank index rose 2% on the day. Rates in the US rose as investors adopted a risk on attitude. The two year yield gained 2 basis points to 0.76% and the ten year yield rose 1 basis point to 1.79%. The VIX continued the downward trend, falling to 13.24.

CDS spreads on Malaysian have risen as rumors about a default circulated over the last couple of days. This marks the latest setback in the country, as it’s 1MDB development fund is facing corruption allegations. Abu Dhabi, which has guaranteed a portion of 1MDB’s outstanding bonds, earlier this week said that the Malaysian fund defaulted on its debt. The Abu Dhabi guarantor of the debt said that 1MDB did not pay $1.1bn of its debts. CDS spreads for Malaysian government debt widened to 164 bp from 160 on Monday even as the yields on the underlying bonds stayed the same. The five year yield is currently 3.42%. Moody’s currently has an A3 rating on Malaysian debt and a stable outlook. The Malaysian ringgit has strengthened this week in spite of the increase in risk. The ringgit has risen 1.2% against the dollar this week to 3.88 per dollar. This comes as emerging market currencies broadly have rallied as investors have been willing to take on more risk.

Ardian, a french private equity firm raised $10.8bn in debt to purchase stakes in private equity funds on the secondary market. This is a new and developing area of the financial industry, where investors in PE funds are able to sell their stakes to buyers. Secondary deals of this nature have nearly doubled over the last two years. Ardian itself is raising capital to form its own funds that invests in secondary stakes of other PE funds. The newly formed market for such transactions is becoming increasingly competitive which has driven up the valuations in secondary sales. What was formerly a very illiquid market that was restricted to forced sellers in distressed situations or those selling for regulatory reasons has become a more liquid market offering attractive returns.

Argentina returns to the bond market for the first time in more than 15 years with the largest bond issuance ever for an emerging market offering. Initially the offering was supposed to be $15bn however the size was bumped up to $16.5bn as a result of high demand. Dealers received almost $70bn in orders. The timing of the deal coincides with a global financial market that is more willing to take on risk compared to the beginning of the year. Flows into emerging market debt funds totaled $37bn last month which is the highest level in nearly two years, as the asset class has returned 6.4% year to date. The 30 year bond priced at an 8% yield, the 10 year at 7.5% and lower maturity bonds were offered as well. The issue attracted such demand in part due to the lack of attractive yields elsewhere in the world.

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Tuesday April 19

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