China's Baidu Searches For Bond Buyers Amid Market Upheaval

Chinese internet search engine Baidu (Nasdaq: BIDU) braved market volatility Tuesday to price an additional US$250m of notes in a reopening of a recent issuance.

The company was the lone issuer to grace the docket, as investors generally flocked to safe-haven assets, while unease resurfaced about trade war tensions between the U.S. and China.

The yield on the 10-year U.S. Treasury note fell 7bps to 2.91%, and the 30-year Bond dropped 11bps to 3.16%. Meanwhile, U.S. equities seeped deeply into the red, with the S&P 500 off nearly 3.25% and Nasdaq down 3.8%. Also, investment-grade credit spreads gapped out to their widest level in more than two years.

Against this backdrop, Baidu sold its follow-on 4.375% notes due May 14, 2024 at a yield to maturity of 4.432% -- a spread of 162.5bps over the five-year benchmark Treasury note.

The new outstanding amount of the issuance rose to US$850m after the sale, with the yield on the notes last at around 153bps more than matched-maturity U.S. Treasuries. The debt had fallen into discount territory Tuesday – with the IBKR Trader Workstation displaying a price of US$99.83.

The deal didn’t appear to receive an entirely warm welcome from risk-averse bond investors, as final pricing on the offering was about unchanged from initial price talk.

Goldman Sachs (Asia) and J.P. Morgan Securities acted as joint bookrunners on the offering. 

Yield curve inversion and ‘Tariff Man’ concerns

Jitters about riskier assets had set-in Monday, amid yield conversion in the front part of the curve, and as the difference between 2-year and 10-year notes have narrowed to a level not seen since 2007. The spread between the 2-year and 10-year notes squeezed to 11bps Tuesday.

When the yield curve inverts – when long-term rates fall below short-term rates – a recession typically ensues. This scenario has included the past two recessions, which occurred in 2001, as well as from 2007 to 2009.

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