HALISTER1: Norges Bank Rate Path to Bottom at 0.40%; NOK to Rise: Nordea

Norges Bank Rate Path to Bottom at 0.40%; NOK to Rise: Nordea

(Bloomberg) -- Norges Bank will keep rates on hold this week but keep an easing bias, signaling a cut in coming months has a significant probability, Nordea senior economist Erik Bruce writes in a research note.
  • Nordea sees the rate path bottoming out at 0.40%, indicating a less than 50% probability of a rate cut, which should be fairly neutral to interest rates; NOK should strengthen
  • Norges Bank signaling that it’s gradually moving to a neutral stance due to a stronger economy could be a trigger for an increased focus on the domestic economy and less on short term movements in oil prices
  • If Norges Bank cuts rates, would expect it to signal that this is the last cut; still interest rates should drop and NOK would weaken significantly
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
1037Z NO (Norges Bank)

People
Erik Bruce (Nordea Securities)

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HALISTER: Goldman Romps Past JPMorgan in Wall Street Battle of ETF Newbies

Goldman Romps Past JPMorgan in Wall Street Battle of ETF Newbies

Alert: HALISTER
Source: BN (Bloomberg News)

Tickers
GS US (Goldman Sachs Group Inc/The)
JPM US (JPMorgan Chase & Co)

People
Ben Johnson (Morningstar Inc)
Eric S Lane (Goldman Sachs Group Inc/The)
Mary Erdoes (JPMorgan Chase & Co)
Mike Crinieri (Goldman Sachs Asset Management LP)
Paul Boyd (Clearpath Capital Partners LLC)

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UUID: 7947283

HALISTER1: EGB Index Extension Supportive for OATs, Large for Gilts: Citi

EGB Index Extension Supportive for OATs, Large for Gilts: Citi

(Bloomberg) -- Expect the EGB index duration to extend by 0.06 yrs at the end of Sept., the average change for the month in five years, which should be supportive for the 10yr+ part of the curve, Citi strategists including Aman Bansal write in a client note.
  • Weighted duration change is most relevant for extensions, and on this basis, the French index is projected to extend the most, closely followed by Italy, driven by an increase in weight of both constituents in the index
  • Among the individual country indexes, Finland should see its largest extension in more than a year as a result of supply and RFGB 09/2017s dropping out of the index
    • Austria, Belgium are also expected to extend by a large amount
  • Gilt index is expected to extend by 0.35 yrs at the end of Sept., largest extension in three years
    • Extension mainly driven by GBP32b of bonds dropping out of the index and issuance of the new gilt 07/2047
  • Treasury index to extend by 0.10 yrs at end of Sept.
INFLATION-LINKED BONDS
  • European Inflation-linked Securities Index is projected to extend by 0.24 yrs at the end of Sept., which would be the 2nd largest extension in a year
    • In terms of weighted duration changes, month-end changes should be broadly supportive for all the four constituents, led by France
    • French index should extend by its fourth-largest amount in three years
  • NOTE: Weighted duration of a country is calculated as (market value of country) x (effective duration) / (market value of EGBI)
    • Very significant for EGBI portfolio managers as they attempt to keep it unchanged through month-end re- balancing: Citi
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Aman Bansal (Citigroup Inc)

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HALISTER1: JPY Swap Curve Twist Steepening Spurs Convergence to USD: Charts

JPY Swap Curve Twist Steepening Spurs Convergence to USD: Charts

(Bloomberg) -- Recent twist-steepening in the JPY swap curve has pushed it toward its USD equivalent ahead of tomorrow’s BOJ rate decision, Bloomberg strategist Tanvir Sandhu writes (see chart).
  • USD-JPY 2s30s swap curve spread currently at 21bps; spread may narrow initially should the BOJ meet increased expectations for an IOER cut and long-end steepening in JGB curve at the same time
    • JGB curve has steepened in the past week amid expectations for a reverse “Operation Twist” by BOJ
    • May see global bull flattening if BOJ keeps policy unchanged; meanwhile, bear-steepening likely to continue if BOJ opts only to reduce the maturity of long-end bond purchases
  • Any further JPY swap curve steepening may be limited by domestic Japanese investors finding the steeper curve attractive and scaling into flatteners
    • This would also make a consistently steeper JPY curve vs USD curve unsustainable
  • Japan’s 10-year zero-coupon inflation swap trades below levels seen just before BOJ unexpectedly adopted negative rates on Jan. 29 (see chart)
    • Ultimately, any reassurance by global central banks that monetary stimulus will be maintained until inflation targets are reached would likely contain rate volatility
  • NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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HALISTER1: SLi Dismisses Talk of Shift to Fiscal Policy as ‘Red Herring’

SLi Dismisses Talk of Shift to Fiscal Policy as ‘Red Herring’

(Bloomberg) -- Staying constructive on bonds globally as inflation is still low and risk of full-scale shift to fiscal policy from monetary policy is a red herring, Jack Kelly, investment director at Standard Life Investments, says in interview.
  • The market has got itself excited about the possibility of a change in central bank thinking but there isn’t any big fiscal expansion going on anywhere
  • Shift to fiscal policy most likely in Japan given that its monetary policy is close to exhaustion in the country that has a more co-ordinated fiscal and monetary approach
  • While the B0J may want to steepen the JGB curve, don’t believe that would be repeated globally by other central banks; hard to see how a curve steepening there will cause a wholesale selloff that leads to a buyers strike in global bond markets
    • A move to fiscal easing in the U.S. is difficult to imagine because of the likely impasse between Congress and the next president; in Europe, there’s no appetite in Germany or in the Netherlands for that to happen
    • In any case, the ECB is still in early phase QE so they can relax rules in sequence and allow themselves more room; and that is the more politically palatable of the region’s options
    • Inflation isn’t being generated in Europe with less than six months to go for official end of QE; ECB may need to extend and expand in the absence of any alternatives which will have a flattening impact on the curve over the medium term
  • In global portfolios, remain long duration; still favor underweight positions in Japan because that’s where radical policy is most likely
  • Bunds will be supported by policy but they won’t be the key beneficiary; so prefer to be underweight relative to those markets where the impact will be felt more keenly such as semi-core, the periphery and Sweden and the U.K.; also likes Australian bonds
  • The lack of free float in gilts and the global yield grab should offer support at these levels
  • The risk-reward for being long periphery is less than it was and Standard Life is fairly neutral; prefers RV within the sector
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Jack Kelly (Standard Life PLC)

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