HYBRIDS: Hybrids: Week in Review

• Date $MM Issuer (Priced *, Launch #)
• 02/26 $Benchmark HSBC 4NC3 +110a, 4NC3 SOFR, 6NC5 +130a, 6NC5 SOFR, 11NC10 +145a
• 02/26 $Benchmark Reinsurance Group 30NC10 7.125%a
• 02/26 $Benchmark Kenya 11Y 10.5%a
  • $14.7B Priced Tuesday, $34.4B/wk

Reuters reporting comments from Ukrainian President Volodymyr Zelenskyy on a US mineral-sharing deal he is expected to sign during a White House meeting with US President Donald Trump on Friday.

• Zelenskyy characterises the deal as a "framework" noting that an additional agreement to set up a fund will follow. He clarifies that the deal won't require ratification from the Ukrainian parliament.
• Zelenskyy says the deal could be part of US security guarantees but that "depends on Trump", adding that he will "ask Trump directly whether he will stop military aid flows."
• Zelenskyy says he will discuss the "possibility to use Russia's frozen assets for mining resources development, weapons purchase, reconstruction."
• Zelenskyy indicates that the final deal may be more limited in scope than anticipated noting there is, "no debt to be repaid to US in wording of minerals deal."
• Bloomberg's Javier Blas argues that Trump may be overestimating the importance of Ukraine's mineral reserves, particularly rare earths.
• Blas: “At best, the value of all the world’s rare-earth production rounds to $15 billion a year — emphasis on “a year.” That’s equal to the value of just two days of global oil output. Even if Ukraine had gigantic deposits, they wouldn’t be that valuable in geo-economic terms.
• “[if Ukraine was able] to produce 20% of the world’s rare earths. That would equal to about $3 billion annually. To reach the $500 billion mooted by Trump, the US would need to secure 150-plus years of Ukrainian output.”

Bank of America note that “with U.S. Tsys still historically cheap vs. swaps, investors continue to lean towards longs in swap spreads”.

• They “agree in the front end but are concerned that long-end spreads may have baked in overly optimistic supply expectations and possibly even regulatory expectations”.
• Bank of America suggest that “spreads appear to be a function of the lower liquidity value of Treasury debt vs. Fed debt (reserves, currency, etc). In the front end, where liquidity is much higher and Tsys are correspondingly less cheap, we are bullish spreads due to near-term bill supply dynamics and Fed portfolio management. But we think long-end spreads have scope for disappointment if deficits prove hard to reduce”.