Halister News

(Bloomberg) -- Prefer Treasuries as the Fed just took 50bps worth of rate hikes off the curve over the next two years, offering support to long end of the U.S. curve, Societe Generale cross-asset analysts led by Alain Bokobza write.

• USTs offer yield pickup and protection, as the year-end should be rich in political events likely to trigger market volatility, while fiscal support in the euro area and Japan may trigger a repricing at the long end of the curve
• Still see virtue in an emerging-market exposure as the Fed continues to confirm a shallow tightening cycle and as the economic situation in China is more stable
  • Prefer bonds to equities in EM as real yields and monetary policy outlook remain supportive of EM bonds
• Keep maximum exposure to inflation-linked bonds in U.S., U.K. and the euro area awaiting further normalization of inflation prints and repricing of inflation expectations
  • These are too low relative to fundamentals in the U.S., while the impact of higher energy prices will finally be felt in the euro area
• GBP is the key currency to short given the clear need for the BOE to do more monetary stimulus to stimulate the economy

(Bloomberg) -- Norges Bank policy report and press releases are on the hawkish side, although don’t expect this to be a “massive trigger” for NOK appreciation, Danske Bank analysts Arne Lohmann Rasmussen and Kristoffer Kjaer Lomholt write in e-mailed comments.

• NOK gains should be contained because sharp appreciation would trigger Norges Bank rate cut
  • Global business cycle is vulnerable, which should contain oil price strength
  • Relative unit-labor cost developments suggest limited NOK upside potential in the short term
• Norges Bank still “officially” has an easing bias, moving toward a neutral stance if economy develops in line with expectations
• Norges Bank has now taken higher Nibor-policy spread into account
• Norges Bank has balancing act: wants to maintain weak NOK while simultaneously signaling that economic fundamentals warrant unchanged rates

Economic Release Details: {PPCBON Index ECOD} --CLARISSA BATINO

--CHRISTIAN WIENBERG

(Bloomberg) -- Fed’s decision to hold interest rates and scale back expectations for increases in 2017 will sustain inflows into high-yielding Asian bonds and currencies, according to fund managers and analysts.

• Won and ringgit led a rally in Asian currencies, while debt in the region saw yields decline. Australia, Thailand and South Korea’s 10-yr yields drop by 8-9 bps
• More asset managers and hedge funds may set up dedicated EM currency and bond funds, according to Commerzbank
• NOTE: Fed’s dot plot shows officials expect one 25-bps rate increase this year, followed by two next year. In Jan., it was showing four hikes for 2016 followed by another four in 2017
• NOTE: South Korea, Thailand, Indonesia and Malaysia have seen a combined net inflow of $36.5 billion into their debt markets so far this year

BONDS:

• JPMorgan Asset Management (Stephen Chang, head of Asian fixed income)
  • Asia FX and bond markets are taking comfort today from Fed’s policy meeting
  • Expects path of higher Fed interest rates to be quite shallow and this means the demand for Asian bonds are likely to remain strong
  • Asian bond market are therefore likely to digest Fed hikes, and any increase in yields may be seen as a buying opportunity

• Commerzbank (Peter Kinsella, head of EM economic & FX research)
  • EM bonds are “here to stay” because Fed policy suggests there’s unlikely to be any aggressive dollar appreciation
  • There’s talk of a Dec. rate hike given the hawkish guidance for Dec. but at the margin that doesn’t make a huge difference to the EM story; investors looking for higher-yielding assets still relevant
  • Expects to see more asset managers and hedge funds setting up dedicated EM currency and bond funds, both in local and hard currencies
  • Likes Indonesia and India bonds

• Bank of Ayudhya (Roong Sanguanruang, market analyst)
  • Thailand’s bond yield curve follows flattening move in the UST after FOMC, putting more downward pressure on yields in the longer-end of the curve
  • Rate increase may be gradual although sees risk that fund inflows to slow when the Fed takes action
  • Expects a rate increase in Dec., which “is far” from being fully priced and that’s why sees scope for dollar strength

• DBS (Eugene Leow, fixed-income strategist)
  • Combination of easing bias by Bank of Indonesia and the “on hold stance” by the Fed renders conditions positive for Indonesia’s bonds
  • Markets are also relieved that the Fed put in “a much slower rate-hike profile” for 2017

CURRENCIES:

• HSBC (strategists Daragh Maher and Clyde Wardle)
  • Emerging FX is likely to rally on improvement in risk appetite and relief that Fed hasn’t surprised, particularly as such currencies have become rather volatile of late
  • High-yielding IDR, INR, ZAR and COP may fare well, while HSBC’s ’barbell’ strategy continues to recommend some low yielders such as KRW and TWD, which enjoy enviable current account surpluses
  • In G10, USD is expected to weaken notably vs “risk on” currencies such as AUD, NZD and SEK

• Scotiabank Asia (Gao Qi FX strategist)
  • Excess global liquidity will continue to support EM Asian currencies, led by won and ringgit
  • Fed likely to maintain size of its balance sheet in year ahead, while BOJ and ECB will continue to expand theirs at a steady pace
  • Potential market uncertainty such as results of U.S. presidential election will spur demand for safe-haven assets, providing support to USD and JPY from time to time

(Bloomberg) -- As expected, the FOMC refrained from raising rates overnight and EU credit mkt reaction today looks set to be positive. The case for a future hike may have strengthened, but the Fed remains guarded for now on timing and on the terminal rate, all of which should be a near-term fillip for risk appetite, Bloomberg strategist Simon Ballard writes.

• Notwithstanding recent weakness in govt bonds and back up in yields, cautious Fed rhetoric and a still-accommodative ECB suggest we are not yet in bearish environment for bonds
  • WIRP now pricing 61% prob of Fed rate rise in Dec, but still in low for longer territory, ECB may expand QE/CSPP by year-end; positive drivers of risk appetite and corp bond valuations
• But macro backdrop and rates outlook uncertainty should limit depth of risk tolerance; investor focus on capital preservation/risk selection, acceptance of low yield, low returns paradigm
• Risk Appetite Model weakness going into Fed may now be reversed as rates left unchanged
• Bloomberg Barclays Eur-Agg Corporate index closed yday at 112bps (+1bp); Bloomberg Barclays Eur HY index closed at 412bps (-1bp)
• CDX IG closed -2.1bps at 75.19 in overnight session; iTraxx Asia Ex Japan IG currently -4.9bps at 116.87 and iTraxx Australia quoted -4.2bps at 103.42

NEWS

• Corporate News
• Kier Says FY Results In Line With Its Expectations
• M&C Saatchi Reports Strong 1H, Says 2H Started Well, in Line
• HB Fuller 3Q Adj. EPS, Rev. Miss Ests., Narrows Yr Adj. EPS View
• Apple’s Talks With McLaren, Lit Motors Show Roads to Car Product
• BHP issues warning over Nationals mining tax plan, as Brendon Grylls hits back

• Financial News
• Lloyds of London 1H Pretax, Return on Capital Rises
• Development Bank of Southern Africa FY Profit More than Doubles
• Julius Baer CEO Says Asia Revenue May Top Europe in 5 Years
• Standard Chartered Agrees to Fund $5b Power Africa Projects

• Credit Rating News
• S&PGR Says Cost Sharing May Shield Aust Ports, Rail Networks
• South African Rating Cut a Serious Risk, De Beers CEO Says

• Other News
• Dubai Said to Seek $2.5 Billion Loans to Expand Metro for Expo

ANALYST VIEWS

• So, the Fed decided not to move (but) the rate tightening cycle was, after all, supposed to have begun several years ago. There’s little more to add here, except that risk assets should be better bid for a while now: creditmarketdaily.com
• Supply/demand balance should become even more stretched, despite CSPP purchases running at full speed. Credit spreads are therefore likely to continue their recent slow drift wider, and in particular outside the CSPP-space better entry levels should remain in store: Commerzbank

NEW ISSUES

• Cades EU250m 0.5% 5/2023 Tap FRTR +7
• Madrid EU500m 8Y Interp SPGB +26
• mFinance France EU500m 4Y MS +157
• MCS Groupe EU200m 5NC2 Senior Secured FRN 3mE +575
• Santander Consumer Bank EU500m 3Y Snr Unsecured MS +58
• Avis Budget EU300m 8NC3 Senior Notes 4.25% Area
• Groupe Fnac EU650m 7NC3 Senior Notes 3.375% Area
• European IG credit pipeline here and HY credit pipeline here
• Issuers exposed to S-T rollover and interest-rate reset risk 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.

--CHRISTIAN WIENBERG

(Bloomberg) -- Expect a bullish bias and flattening pressure on curves in the coming weeks, as end-of-month period and supply dynamics will be favorable for a rebound in bond markets, BNP strategists including Patrick Jacq write in a client note.

• Month-end duration extension can fuel portfolio adjustments
• Prospect of negative net supply in October of about -EU75b will also probably lead to lower bond yields
• Front end of EUR curve is in a tight range, with little prospect of ECB decisions in the coming weeks to fuel curve re-steepening