HALISTER1: AUCTION PREVIEW: Constructive on OATs Sale Given Value vs OLOs

AUCTION PREVIEW: Constructive on OATs Sale Given Value vs OLOs

(Bloomberg) -- France to sell 0.25% 11/2026, 1.25% 05/2036 for EU7b-8b at 10:50am CET.
  • Analysts highlight concession seen vs Belgium, expect recent underperformance of OATs to be erased
  • Citi (Saumesh Dutta)
    • Good relative value in 10y as seen in 5s10s30s yield fly, which has cheapened since the bond was first sold; auction is also opportunity to fade widening vs Belgium
    • Overall remain constructive on OAT/bund spreads in near term; France’s cash-flow outlook is supportive in November and recent action by S&P to restore the stable outlook mitigates near-term downgrade concerns
  • Mizuho (Antoine Bouvet)
    • Demand at yesterday’s 10Y bund supply is an encouraging sign for today’s OAT sale; stabilization of core EGB yields seen in the last couple of days likely to help outright buyers
    • Expect the 10Y sale to be supported by short-covering demand judging from the specialness of the bond on repo
  • RBS (Giles Gale)
    • This supply is a large duration event for the market, may be around EU10m/bp; recommended being long 10y vs 5y and 15y, futures also look cheap; the passing of supply should help this come back into line
  • SocGen (Marc-Henri Thoumin)
    • 05/2036 has seen a decent concession vs equivalent OLO ahead of supply: 20y OAT/OLO spread has widened by ~6bp in yields, while equivalent 2031 and 2045 spreads have risen by just 3bps
    • Upcoming supply has led to market discrepancy that should fade after auctions; further, France has completed its annual issuance program, so regular auctions into year-end will probably be conducted for reduced sizes
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Saumesh Dutta (Citigroup Inc)
Antoine Bouvet (Mizuho Financial Group Inc)
Giles Gale (Royal Bank of Scotland Group PLC)
Marc-Henri Thoumin (Societe Generale SA)

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UUID: 7947283

HALISTER1: AUCTION PREVIEW: Mixed Views on Spain Supply; Levels Rich vs BTP

AUCTION PREVIEW: Mixed Views on Spain Supply; Levels Rich vs BTP

(Bloomberg) -- Spain to sell 0.75% 07/2021, 1.3% 10/2026, 1.95% 07/2030 bonds for EU2.5b-3.5b, and I/L 2024 for EU0.5-1.0b at 10:30am CET.
  • Some caution among analysts given gains in Spanish bonds, though reduced size and relative value seen as supportive
  • Mizuho (Antoine Bouvet)
    • Despite some underperformance vs BTPs yesterday, SPGBs have fared better than the pickup in risk aversion and questioning of ECB easing would have suggested
    • In yield terms, recent back-up is likely to be viewed as an investment opportunity by some outright investors, should help the sale
    • Optimistic on the 5y issue given its richening on the curve, history of being special on repo, but see small auction size as generally supportive for other lines too
    • Suspect there is a short base in the 10/2026 as the bond has not been tapped in a month
  • ING (Benjamin Schroeder)
    • The end to political deadlock has benefited SPGBs in recent weeks, but 10y spreads vs bunds has hit resistance at about 105bps
    • New government is supportive, though passing a budget with a minority government may prove difficult
    • On balance, see SPGBs as relatively rich, not only versus BTPs
  • Santander (Edgar da Silva)
    • 15y bond is most interesting in RV, trades about 3bps cheap to fair value; see auction as an opportunity to lengthen duration by switching out of the immediately shorter 01/2029, which trades about 4bps rich, into the 15y auction bond
    • See value in owning the 10y, vs 10/2028, which trades about 2bps rich; 5y issue offers little in RV terms
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Antoine Bouvet (Mizuho Financial Group Inc)
Benjamin Schroeder (ING Groep NV)
Edgar Da Silva Figueira (Banco Santander SA)

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UUID: 7947283

HALISTER1: Macau Govt Introduces Expanded Anti-Money Laundering Law Draft

Macau Govt Introduces Expanded Anti-Money Laundering Law Draft

(Bloomberg) -- Executive council concludes debate on amendment to anti-money laundering and prevention of terrorism law, according to govt statement.
  • Amendment to expand list of crimes classified as money- laundering offences
  • Strengthens due diligence checks on clients including gaming customers
Link to Statement:Link
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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UUID: 7947283

HALISTER1: India May Yet Succeed in Keeping Lid on Fiscal Deficit: Analysts

India May Yet Succeed in Keeping Lid on Fiscal Deficit: Analysts

(Bloomberg) -- One-off inflows may help India keep a lid on its budget deficit even as the gap balloons to 84% of target within six months of the fiscal year, analysts say, adding that this should help support bonds.
  • Inflows from share sales of state-run units, auction of airwaves and a tax amnesty scheme may help keep a rein on the short-fall, analysts at Nomura, DBS and Kotak Mahindra Bank say
  • Capital Economics, however, sees the deficit widening to 3.7% of GDP versus 3.5% budgeted in FY17
  • April-September budget deficit widened to 84% of full fiscal year target vs 68.1% in the previous year
    • That’s the highest first half deficit in nearly two decades, according to Business Standard
  • Govt has sold shares worth 214b rupees out of a budgeted 565b rupees via divestment so far this fiscal year
  • 652.5b rupees declared under tax amnesty plan, Finance Minister Jaitley says
  • 10-year bond yield has dropped 66bps in this fiscal year, helped by RBI’s shift to a neutral liquidity stance and 50bps of rate cuts
Key Views:
  • DBS (Radhika Rao, economist)
  • One-off receipts are likely to offset trailing direct tax collections while indirect revenues get a hand from fuel- based excise duties; fiscal targets unlikely to be missed
  • Govt has “very limited” room to maneuver in 2H of fiscal year; expenditure need to be curtailed if revenues fail to catch-up
  • Kotak Mahindra (Madhavi Arora, economist)
    • Likely to see some improvement in receipts due to tax amnesty inflows, divestment and telecom spectrum proceeds
    • Expenditure has to be tapered to keep deficit under budgeted targets for FY17
    • Unless the govt increases bond supply as against the budgeted estimate on account of any fiscal slippage, such monthly lumpy fiscal numbers may not be material for the bond market
  • Capital Economics (Shilan Shah, economist)
  • There are pressures on the spending side that could result in the govt having to loosen its fiscal targets, which could lead to a rise in bond yields over the coming months
  • Expects a slight loosening to 3.7% of GDP for FY17
  • Nomura (Sonal Varma, economist)
    • Depending on the disinvestment receipts in the second half, some expenditure squeeze might become necessary, but expect 3.5% will be met
    • Authorities are quite committed to 3.5% target
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Madhavi Arora (Kotak Mahindra Bank Ltd)
Radhika Rao P (DBS Bank Ltd)
Shilan Shah (Capital Economics Ltd)
Sonal Varma (Nomura Holdings Inc)

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UUID: 7947283