Halister News

(Bloomberg) -- Main scenario for Norges Bank tomorrow is unchanged policy, although it will be a close call and investors are currently underpricing the probability of a rate cut; from a risk-reward perspective, this suggests being positioned for lower Nibor rates going forward, Danske Bank strategist Jostein Tvedt says in client note.

• NOK 3-mo. Dec. 2016 FRA at 0.99% seems too high; Danske advises receiving this contract outright, or position for a steeper curve vs the NOK 3-mo. Dec. 2017 FRA
• Majority of market observers, including Danske Bank, say that stronger data since last Norges Bank meeting in June makes further easing tomorrow less likely, meaning a rate cut would be a surprise
• Elevated 3-mo. Nibor fixing means transmission mechanism from the target rate to the borrowing costs of households and industry has been weakened this year
  • This strongly suggests that further interest-rate cuts and/or liquidity measures may be warranted

(Bloomberg) -- The BOJ’s policy shift to “QQE with yield curve control” will be important for European markets as it re-frames the policy discussions around the forthcoming ECB meetings, RBC analysts write in client note.

• An attempt to cap long-term bond yields hasn’t been tried before, save the more vague caps introduced during the ECB’s OMT operation, so today’s announcement introduces a new modus operandi instead of simple quantitative targets for bond buys
• Given the ECB and the BOJ face very similar challenges, market players may start thinking about whether this offers a new line of thinking for European policy makers
• Given current constraints and that it’s mainly the peripheral markets that are struggling, it would be interesting to see if such targeting is feasible on Europe’s higher-yielding assets
• Expect the short end of bund curve should remain well supported and the steepening theme is likely to continue, with the ultra-long sector particularly vulnerable
  • Favor Schatz long via options and against the EONIA curve, and long straddles/strangles in the bund contract; have also recommended shorts in 15Y15Y GBP and inclined toward EUR and GBP steepening trades

(Bloomberg) -- Court received about 14,000 suits by small and institutional investors.

• Number included pending suits and new cases filed in last week
• Investors claim their VW shares lost in value because co. informed them too late about diesel-emission scandal
• Braunschweig court comments in e-mailed statement
• NOTE: Volkswagen Suits May Have German Court’s Fax Machine Overheating

(Bloomberg) -- Financial committee passed resolution demanding that Financial Supervisory Commission provide names of suspected money launders in Mega Bank case in closed-door meeting scheduled for next week.

• Prosecutors have obtained information of Mega Bank customers involved in suspicious fund transfers, FSC Chairman Ding Kung-Wha said in legislative finance committee’s Q&A session
• NOTE: Yesterday, Taiwan to review govt officials responsibility in Mega Bank case
  • Aug., Mega fined $180m by N.Y. over anti-money laundering law

(Bloomberg) -- EUR credit markets likely to see a muted session today as participants hold breath ahead of the FOMC; underlying tone should remain firm though in wake of overnight Asian equity rally following BOJ monetary-policy adjustments, Bloomberg strategist Simon Ballard writes.

• WIRP now showing only 22% probability of a U.S. rate rise today; Fed hasn’t increased rates with WIRP less than 80% since 1999, so any hike later would surprise, likely create negative reaction among risk assets
• EUR corporate spreads should be well anchored this morning after BOJ shift in policy framework to target yield curve
  • But Asia rally might soon be faded if initiatives seen as still insufficient to address deflation
  • Global rates outlook still key driver of medium-term risk appetite
• Risk Appetite Model sees small consolidation wider on Fed/BOJ uncertainty
• * Bloomberg Barclays Eur-Agg Corporate index closed yday at 111bps (unchanged); Bloomberg Barclays Eur HY index closed at 412bps (+1bps)
• CDX IG closed +0.1bps at 77.26 in overnight session; iTraxx Asia Ex Japan IG currently +5.4bps at 122.56 and iTraxx Australia quoted flat at 107.50

NEWS

• Corporate News
• HTC Climbs to Highest in Two Weeks After Unveiling New Phones
• Majestic Wine Sees Full Year Ebit to Be Below Expectations
• Saga On Track to Meet Full Year Targets, Raises 1H Dividend 23%
• FedEx Boosts 2017 Outlook After Topping Quarterly Estimates
• Glencore Sees Nickel Price Rising on Global Supply Shortage

• Financial News
• Japan Banks Jump as BOJ Keeps Rate Unchanged, Targets Yields
• China’s Postal Bank Said Poised to Raise $7.4 Billion in IPO
• Intesa in Talks to Buy ITB for Up to EU180m, Sole Reports
• Julius Baer Adding Headcount in HK, Singapore in ‘A Big Way’

• Credit Rating News
• S&PGR Affirms ’BBB/A-2’ Ratings On Philippines; Outlook Stable
• Fitch Affirms Six Taiwanese Banks; Outlook Stable

• Other News
• Gold Seen Entering Long-Term Bull Cycle as Asset Bubbles Po
• Some Hope for European Profits as 15 Months of Downgrades Ends
• Allure of BBB Bonds Grows for Aussie Insurer Battling Low Yields

ANALYST VIEWS

• The drivers for corporate bonds and the likelihood that spreads start to tighten again and returns rise again will come from an increase in government bond prices (lower yields) plus central bank buying of corporate debt: creditmarketdaily.com

NEW ISSUES

• CA Assurances EU1b 32NC12 Subord MS +435
• KfW EU4b 7Y Global MS -24
• Land NRW $1.5b 3Y Reg S MS +24
• RLB Oberoesterreich EU500m 10Y Covered MS +10
• Toyota Motor Credit GBP500m 6Y UKT +68
• eDreams ODIGEO EU425m 8/2021 NC2 Snr Sec 9% 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.

(Bloomberg) -- Societe Generale recommends paying Singapore’s 2-year interest-rate swaps vs receiving U.S.’s 2-year IRS at a spread of 39 bps, Frances Cheung, head of Asia ex-Japan rates strategy, writes in note today.

• Target is 75 bps and stop-loss order is at 21 bps; trade horizon is 2 to 3 mos.
• A hawkish outcome from FOMC meeting is likely to drive SGD IRS higher, more so than a dovish one that pressures SGD IRS further down relative to USD IRS; says FOMC may take another step toward hiking rates in Dec. by re-introducing balance for risks statement for first time this year
• Sees FX as another factor potentially driving SGD swaps higher
• NOTE: Spread between SGD 2-year IRS and USD 2-year IRS is now at 38 bps

(Bloomberg) -- Yield curve for Japan’s government debt lifts with the 10-year sovereign rising above zero for the first time in six months as the BOJ shifts tack to exceed its 2% inflation target.

• Calling the new policy “QQE with Yield Curve Control,” BOJ says it will buy JGBs such that 10-year yield remain at the current level of around zero percent
• BOJ will also buy JGBs at designated yields, and offer fixed-rate funds-supplying operations for up to 10 years
  • Central bank left negative interest rate at -0.1% as well as annual pace of JGB purchases at 80t yen
  • BOJ commits to expanding the monetary base until year- on-year rate of increase in CPI exceeds target
• USD/JPY climbs as much as 1.1% to 102.79; 10-year yield climbed to as high as 0.005%, before trading at -0.03%
  • NOTE: BOJ leaks steepen yield curve with questions over method

MARKET VIEWS:

• Norinchukin Research Institute (Takeshi Minami, chief economist)
  • First option for the monetary policy seems to have shifted to deepening negative interest rate to steepen the yield curve; today’s decision sets up the environment to do that in the future
  • 10-year yield may trade near 0% as the BOJ commits to that line; the central bank probably wants to steepen the curve up to 5-year tenor and therefore, close attention should be paid to repurchase program
  • BOJ didn’t add to easing, but delivers framework for further easing, reducing downside risk for USD/JPY

• JPMorgan Chase & Co. (Takafumi Yamawaki, chief rates strategist)
  • BOJ is unlikely to cut short-term rates excessively; trying to control 10-year yield near 0% suggests 7-year rate on the futures will probably trade slightly below zero
• Volatility on yield curve will probably drop

• Bank of Tokyo-Mitsubishi UFJ (Minori Uchida, Tokyo-based head of global market research)
  • Japanese bank shares, JGB 10-year yield and USD/JPY are rising on waning concerns over side effects of negative rate policy following BOJ’s decision
  • Flexible monetary base target may spur speculation of reduced QE; BOJ’s scrapping of target for average maturity of govt bond holdings would shorten average maturity, not add to existing accommodative policy
  • Today’s BOJ decision is unlikely to put downward pressure on yen, making it hard for USD/JPY to rise above 103; maintains view that USD/JPY will gradually drop, falling below 100 level toward year-end

• Citigroup (Todd Elmer, FX strategist)
  • BOJ introducing two wrinkles that were not fully discounted may be seen as a net positive for risk appetite
  • Implication is that BOJ is giving itself additional freedom to shape yield curve, and it’s voicing that this is an explicit aim
  • Additional freedom to maintain the policy track indefinitely

• RBC Capital Markets (Sue Trinh, head of Asia FX strategy)
  • BOJ appears to be laying the groundwork for more easing going forward but wants to take care of the banks first
  • From a monetary-policy perspective this is a bit underwhelming as there are no aggressive moves
  • Expects USD/JPY to move below 100 in coming weeks, if Fed holds rates unchanged

• FX Prime by GMO Corp. (Hiroshi Yanagisawa, a dealer)
  • Gains in JGB yields following BOJ’s decision are helping to boost U.S. interest rates, supporting USD
  • Markets seem to welcome BOJ’s plan to adjust its exchange-traded fund purchases to buy more ETFs tracking the Topix
  • Treasuries 10-year yield now up 2 bps to 1.714%

• Mizuho Bank (Vishnu Varathan, economist)
  • The strong easing bias and the alleviation of banking sector risks -- buoying Nikkei via relief in banking stocks -- is propping up dollar-yen

• Nordea (Amy Zhuang, senior analyst)
  • BOJ shift in policy framework could be read as sign that it is reaching a limit with easing and isn’t as confident about monetary policy as its policy assessment suggests
  • Disappointed that no new measures were introduced
  • Reluctance to cut rates further may reflect resistance from financial institutions, which have complained about impact of negative rates on earnings and about low long- term yield

• SMBC Nikko Securities (Takayuki Atake, credit analyst)
  • Japanese companies may be encouraged to continue selling longer-term bonds if there is a feeling that interest rates could rise
  • Such sales will be affected more by underlying government bond yields rather than credit issues

--With assistance from Hiroko Komiya, Yumi Ikeda, Jimmy Zhu, Netty Ismail, Mark Cranfield, Finbarr Flynn and Subhadip Sircar. To contact the reporters on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net; Daisuke Sakai in Tokyo at dsakai2@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net