Halister News

--AMY THOMSON

--SHAMIM ADAM

(Bloomberg) -- EUR cap and forward-starting swap combination is a reasonable compromise to reap the lion’s share of benefits from low Euribor rates while implementing a hedge against an adverse outcome, Commerzbank strategist Markus Koch writes in client note.

• Recommend EUR 2y cap struck at 0% coupled with a 2y3y forward start swap
• Based on current pricing, the 2y cap premium adds only about 4bp to the 2y3y IRS given the ECB’s low rate pledge
  • Note that from a regulatory perspective, borrowers may be obliged to add caps to any forward-swap arrangement to limit overall reset exposure of the loan
• Euribor-based loans via swaps (ie paying fix vs receiving a variable rate) is fairly straightforward yet; negative carry is considerable as a result of the recent re-steepening of the EUR term structure (3-month vs fixed-rate rate)
• Borrowers may hence be shunning IRS hedging, even though higher fixed rates are looming for next year

(Bloomberg) -- Credit market activity likely to be muted Friday, even as IG and HY spreads remain anchored. Immediate focus will be on U.S. non farm payroll data and then onto Sunday’s Italian referendum and the implicit plebiscite on PM Renzi’s administration, Bloomberg strategist Simon Ballard writes.

• Asian credit markets had softer tone overnight as investors scale back Trump rally expectations; weak base for EUR risk assets at the open
  • Rates outlook - and changing political landscape as Hollande withdraws from French socialist primary - remains key to corp bond returns and price performance
• Italian banks likely to remain under microscope whatever the referendum result Sunday; recapitalization plans and associated execution risks

• Bloomberg Barclays Eur-Agg Corporate index closed Thursday at 126bps (flat); Bloomberg Barclays Eur HY index closed at 419bps (-2bps)
• CDX IG closed Thursday at 73.62 (+1.0bp); iTraxx Asia Ex Japan IG is currently +0.6bps at 125.77 and iTraxx Australia quoted +0.8bps at 109.125

NEWS

• Corporate News
• Toyota China Nov. Vehicle Sales Rise 6% Y/y to 111,100 Units
• Transneft 3Q Net Rises to 48b Rubles vs 14.6b Rubles Y/y
• VW’s Penance for Cheating Takes Shape With California Wish List

• Financial News
• ECB Sets AIB Minimum CET1 Capital Level at 9% for 2017
• Singapore Sanctions Ex-Goldman Banker Leissner After Probe
• Italy, EU Discussed How State Could Help Monte Paschi: Corriere
• Paschi Seeks EU1-1.5b in Debt Swap, May Give Result Monday: Sole

• Rating News
• BTG Pactual Outlook Raised to Stable From Negative by Moody’s
• Australia should boost infrastructure spending to protect AAA credit rating, IMF says
• South Africa Junk Rating Might Be Hours Away and Last Years

• Other News
• Italian Banks Flirt With Disaster Again as Government Teeters
• Goldman’s Gary Cohn Said to Meet With Trump’s Team This Weekend
• Australia’s Steeper Curve Supports Demand at 3-Year Note Tender

ANALYST VIEWS

• Primary markets, in our view, have two weeks worth of business left in them before we close out 2016’s activity. It’s been a very good year for issuance - and for borrowers. (Not) quite record levels, but there is a good chance that 2016 becomes the second best year ever for non-financial issuance: creditmarketdaily.com
• Buy French Banks If They Drop on Italy Referendum: Macquarie
• While risk-off should dominate in case of a (Italian referendum) ‘no’, the unexpected case of a ‘yes’ vote would merely prepare the grounds for the ECB to improve risk sentiment more lastingly: Commerzbank

NEW ISSUES

• Aegon EU500m 7Y MS +75
• Barclays EU1b 7Y MS +155
• Bupa Finance GBP400m 10Y Tier 2 UKT +367
• Ecolab EU575m 1/2024 MS +75
• IFB Hamburg EU100m Social Bond MS-9
• Knorr-Bremse EU500m 5Y MS +45
• Marks & Spencer GBP300m 7Y UKT +210
• Becton, Dickinson and Co EU500m 6Y, EU500m 10Y
• European IG credit pipeline here and HY credit pipeline here

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.

--ASHUTOSH JOSHI