HALISTER1: Most Shrinkage in Fed’s Portfolio to Come From Reduced MBS: CS

Most Shrinkage in Fed’s Portfolio to Come From Reduced MBS: CS

(Bloomberg) -- While there doesn’t appear to be a consensus, prospect of FOMC beginning discussion on reinvestment policy is clearly “on the Fed’s radar,” Credit Suisse analysts led by Praveen Korapaty wrote in note Tuesday.
  • Timing, how any ending of reinvestments would be phased in, remain unclear
  • CS is skeptical that Fed will shrink UST portfolio in “any meaningful fashion,” though it has capacity to do so with almost $800b maturing in 2018-2019
    • Rather, most of shrinkage will likely come from “organic” reduction in MBS holdings as result of paydowns
  • This discussion introduces new source of “policy-induced volatility” that can put upward pressure on term premia
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Praveen Korapaty (Credit Suisse Group AG)

Topics
To Be Announced Securities

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HALISTER1: Avoid Mexican Consumer Firms Amid Gasolinazo, CPI Risk: Itau

Avoid Mexican Consumer Firms Amid Gasolinazo, CPI Risk: Itau

(Bloomberg) -- Alsea, Liverpool and Bimbo removed from IBBAMex model portfolio at Itau as Trump win and “gasolinazo” drive increased uncertainty for Mexico that’s “unlikely” to dissipate soon, analysts led by Gregorio Tomassi write in Jan. 17 note.
  • Mexican gasolinazo will “materially” hurt consumption, siphoning away as much as 1.9% from Mexicans’ household expenses, Itau says
  • Other risks for sector include increased inflation expectations for 2017 based on Banamex survey and bond market’s implied inflation amid gasolinazo and peso depreciation
  • Itau adds Chedraui, Televisa to model portfolio
  • Recommends building overweight exposure in sectors “most severely punished by market,” including financials with Banorte and Santander Mexico, and real estate with overweight in Fibra Uno
  • Also suggests new overweight in materials, with overweight in Alpek on prospect for higher oil prices
  • Adds equalweight in Grupo Mexico as it stands to benefit from opening of Mexico’s gasoline industry
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
ALPEKA MM (Alpek SAB de CV)
ALSEA* MM (Alsea SAB de CV)
LIVEPOL1 MM (El Puerto de Liverpool SAB de CV)
FUNO11 MM (Fibra Uno Administracion SA de CV)
BIMBOA MM (Grupo Bimbo SAB de CV)

People
Gregorio Tomassi (Itau Unibanco Holding SA)

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