Halister News

(Bloomberg) -- As the Fed starts allowing $6b of Treasuries to roll off per month, it will allocate the rollover amount between mid-month and end-of-month maturities in proportion to the amount of SOMA holdings scheduled to mature, Jefferies economists Ward McCarthy and Thomas Simons say in note. 

• Here’s how roll-offs will be split for first three months of normalization:
  • October end-of-month: $8.7b maturing, $6b rolls off, $2.7b rolled over (no mid-month maturities)
  • November mid- month: $11b maturing, $3.5b rolls off, $7.5b rolled over
  • November end-of-month: $7.9b maturing, $2.5b rolls off, $5.4b rolled over
  • December end-of-month: $17.5b maturing, $6b rolls off, $11.5b rolled over (no mid-month maturities)
• Process of reinvesting proceeds from maturing SOMA holdings is “broadly unchanged” from the process that has been in place for many years

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Vivien Lou Chen

--GREG STOHR

(Bloomberg) -- With inflation slowing down and economy overcoming one of worst recessions in history, analysts see a sovereign issuance as a possibility for Brazil, given the favorable conditions available at the moment for emerging markets.

• NOTE: Brazil last issued sovereign bonds in March
• It’s the “right moment” for an issuance, Eric Vanraes, fixed-income portfolio manager at EI Sturdza Investment Funds, says in an email
  • Vanraes cites the success of recent operations by issuers including Chile’s Enap and Ukraine
• Carlos Gribel, head of fixed-income at Andbanc Brokerage, says in interview that he sees room for a sovereign offering, and any uncertainty that may arise from 2018 presidential election should not hurt investors’ interest in Brazil at the moment 
• Sovereign issuance is "certainly" an option, says Marco Saravalle, an analyst at XP Investimentos, citing recent overseas bond sale by Petrobras as a sign of interest in Brazil
  • Market could be already pricing in a possible sovereign rating upgrade for Brazil in the medium term

Original Story: Brasil conta com fundamento e liquidez para deslanchar soberano To contact the translator on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net Reporters on the original story: Patricia Lara in Sao Paulo at plara6@bloomberg.net; Ana Carolina Siedschlag in São Paulo at asiedschlag@bloomberg.net Editors responsible for the original story: Daniela Milanese at dmilanese@bloomberg.net Taís Fuoco

(Bloomberg) -- Near-term positioning views on USTs are in broad agreement that last week’s hawkish FOMC decision pushed front-end rates as high as they’re likely to go in the near term.

• TD (strategists led by Priya Misra, Sept. 22 note)
  • Turns neutral on duration and curve
  • Curve can continue to flatten, but requires a faster pace of Fed hikes that has no near-term catalyst; economic data “may become more difficult to read” following hurricanes
• Soc Gen (strategists led by Subadra Rajappa, Sept. 21 note)
  • Take profits on front-end shorts as yields are unlikely to rise further until a few weeks before December FOMC meeting
  • Belly yields could rise further on strength in U.S. economic data and reduction in ECB asset purchases; short 5s vs 30s or vs 2s and 10s should perform well through year-end unless Treasury increases long-end issuance
• Morgan Stanley (strategists led by Matthew Hornbach, Sept. 22 note)
  • Favors curve flatteners, disfavors owning inflation protection 
    • “When a central bank tightens policy with inflation moving further below its target, why do investors need to worry about duration risk” or own inflation protection?
  • Recommended trades include UST 2s30s flatteners and eurodollar curve flatteners (EDZ7/EDZ8 and EDZ7/EDZ9) as “the market-implied pace of rate hikes has increased too much” in September
• Nomura (strategists led by George Goncalves, Sept. 22 note)
  • Days of “dovish hikes” appear to be over; September FOMC meeting “can be characterized as hawkish”
  • Rates should rise and swap spreads should widen; however, “the real tightening from rising term premium and liquidity draining will result in less Fed hikes over time,” thus balance-sheet unwind “ultimately prevents a full flattening” or curve inversion
  • Real curve flattening should allow forward inflation breakevens to perform; 5y5y BEI should benefit from CPI recovery and repricing of inflation premium
• JPMorgan (strategists led by Jay Barry, Sept. 22 note)
  • With market pricing in more than 60% odds of a 25bp hike in December, “we turned neutral on duration and recommended unwinding duration shorts in the 2-year sector”
  • Also, “traditional post-Fed dynamics suggest risks to lower yields over the near term,” as front-end yields tend to rise leading up to long-format FOMC meeting and reverse lower in following weeks
  • Recommends 3s5s steepeners as curve at front end “has lagged the move to higher yields”
• BofA (Shyam Rajan and Carol Zhang, Sept. 22 note)
  • Turns neutral from short on front end of U.S. curve after odds of a December rate hike topped 65%, “a level never reached this far ahead of an actual hike in this cycle”; MORE

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Vivien Lou Chen

--DAVID MARINO