HALISTER1: BOJ Policy Risks Lean Toward JGB-Led Bond Relief Rally: Citi

BOJ Policy Risks Lean Toward JGB-Led Bond Relief Rally: Citi

(Bloomberg) -- Expect a relief rally in JGBs as the steeper curve was signaled and priced a week ago, Citigroup strategists including Harvinder Sian write in client note.
  • Expect no rate cut or change in the JPY 80t JGB buying target
  • Should the BOJ cut, then this morphs into another global yield collapse
  • End of QQE is next year’s story and takes us closer to yield targeting and iterations on debt monetization
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Harvinder Sian (Citigroup Inc)

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HALISTER1: AUCTION PREVIEW: 30Y Gilt Seen Finding Relative-Value Demand

AUCTION PREVIEW: 30Y Gilt Seen Finding Relative-Value Demand

(Bloomberg) -- U.K. to sell new 1.5% 07/2047 for GBP2.5b at 10:30am London time; analysts see steepening risks to gilt curve given supply, fiscal outlook, with focus probably shifting to relative-value considerations.
  • JPMorgan (Francis Diamond)
    • Fair value ~1.5-2.0bps over 01/2045 in yield-spread terms, though note that the duration characteristics of this new bond could suggest richer levels than this; expect some new issue premium
    • Expect some switching out of 07/2052 into new bond, as 2052 is modestly rich on fitted curve
    • Keep 10s30s gilt curve steepeners into long-end supply, risks of further global steepening
  • RBC (Vatsala Datta)
    • 30bps back-up in outright yields in the long end, plus underperformance of this sector on ASW, cross-market will be seen supportive of today’s supply
    • Risk appetite likely to be limited by key central bank meetings tomorrow; see scope for long end to continue to underperform as focus turns to autumn statement
      • In addition, there are a number of long-end supply events, which are likely to keep the curve under steepening pressure
    • Demand likely to come from relative value, as being a low-coupon bond, the new 2047 is more cash efficient vs similar duration bonds (07/2052, 12/2055)
  • SocGen (Marc-Henri Thoumin)
    • Curve inversion beyond 2044 area suggests new bond should trade below these issues in yield terms, especially given new gilt’s low coupon means it has a greater duration, convexity than any of the other gilts in its maturity area
    • Bond should trade cheap vs fair value given regular tapping cycle, limited liquidity as a new issue and note being ineligible for QE until Oct. 18
      • As a result, expect 1-2bps of cheapening from current levels into the auction, expect 07/2047 to trade ~2bps below 01/2045
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Francis Diamond (JPMorgan Chase Bank NA)
Marc-Henri Thoumin (Societe Generale SA)
Vatsala Datta (RBC Europe Ltd)

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HALISTER1: EU CREDIT DAILY: Tighter Bias; Kingfisher Beats, Stumpf Sorry

EU CREDIT DAILY: Tighter Bias; Kingfisher Beats, Stumpf Sorry

(Bloomberg) -- Expectations the Fed will leave U.S. rates unchanged this week, coupled with the latest CSPP data showing another aggressive weekly buying spree from the ECB is helping ratchet European cash corporate bond spreads tighter for now, Bloomberg strategist Simon Ballard writes.
  • Sentiment may be fragile, but the medium-term path of least resistance for corp bond valuations seems to remain tighter
    • Risk assets susceptible to any surprise Fed rate hike tomorrow; any consequent rise in real bond yields, implicit tightening of financial conditions, could have potentially negative impact on credit markets
  • Beware optical widening in iTraxx indexes this morning due to roll from S25 to S26; Main ~+7bps, Xover ~+13bps
  • Risk Appetite Model Holding Steady Ahead Of Fed And BOJ
  • Bloomberg Barclays Eur-Agg Corporate index closed yday at 111bps (unchanged); Bloomberg Barclays Eur HY index closed at 411bps (-1bps)
  • CDX IG closed -0.01bps at 77.14 in overnight session; iTraxx Asia Ex Japan IG currently +7.9bps at 119.91 and iTraxx Australia quoted -0.2bps at 98.17
NEWS
  • Corporate News
  • Bayer Raises Peak Sales Forecast for Portfolio of New Medicines
  • Kingfisher 1H Retail Profit Beats Ests.
  • Pennon Says On Track to Meet Forecasts, Earnings Driven by ERFs
  • Canada Auto Union in Tentative Agreement With General Motors
  • EDF Extends Halt of Cruas-3 French Reactor to Oct. 6
  • Financial News
  • IG Group 1Q Revenue Rises 5.1%; Says Quarter Was Challenging
  • China’s Biggest Banks Quicken Pace of Bad-Loan Security Sales
  • Danske Says ‘Full London’ Isn’t Goal in Capital Markets Overhaul
  • Deutsche Asset Mgmt Clients Withdrew EU20b in 1H
  • ‘Deeply Sorry’ Stumpf Says Wells Fargo Too Slow to Tackle Abuses
  • Credit Rating News
  • S&PGR Downgrades Insurance Entities Of Australian Major Banks
  • S&PGR Downgrades State of Rio de Janeiro To ‘SD’
  • Other News
  • Two of Fed’s Own Primary Dealers Warn Shock Hike Awaits Markets
  • Yellen Must Brace for More Political Attacks If Hike Is Delayed
ANALYST VIEWS
  • There’s just no dimming appetite for corporate bond risk, with the ECB doing some heavy lifting. The HY sector has roadshows/deals on the go for this week, and FIG issuance looks to be picking up, too: creditmarketdaily.com
NEW ISSUES
  • Berlin Hyp EU500m 7Y Green Bond MS +52
  • Celanese US Holdings EU750m 7Y MS +110
  • Koninklijke DSM EU750m 10Y MS +40
  • Klepierre EU600m 15Y MS +60
  • LBBW EU500m 10Y Tier 2 MS +255
  • 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.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
WFC US (Wells Fargo & Co)

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HALISTER1: China’s Iron-Ore Futures Jump, Snapping Losing Streak; AUD Gains

China’s Iron-Ore Futures Jump, Snapping Losing Streak; AUD Gains

(Bloomberg) -- Iron-ore January futures on Dalian exchange heading for first advance in ten sessions; contract up 2.2% to 398.5 yuan/MT, heading for first increase since Sept. 2.
  • Yesterday touched two month low at 383 yuan/MT
  • AUD/USD trading near to session highs, up 0.2% to 0.7549
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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HALISTER1: BOJ to Cut Rates, Increase QE; Reiterate Can Do More: ABN Amro

BOJ to Cut Rates, Increase QE; Reiterate Can Do More: ABN Amro

(Bloomberg) -- Expect the BOJ to step up monetary stimulus, but not in an aggressive way, ABN Amro senior economist Maritza Cabezas writes in a client note.
  • BOJ communication to be “strong” on what the central bank can do, but more modest on what it really will do
  • ABN Amro expects a rate cut to -0.2% and an increase in the asset purchase target to JPY85t-JPY90t annually
  • BOJ efforts to explain and evaluate the current approach are welcome, as Japan inflation on all measures continues to trend down amid concerns over monetary policy effectiveness
  • Longer term, effective monetary policy will also require labor market reforms and a credible fiscal plan
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Maritza Cabezas (ABN AMRO Bank NV)

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HALISTER1: Little Impact on EUR Short End From Modest TLTRO-2 Demand: BNP

Little Impact on EUR Short End From Modest TLTRO-2 Demand: BNP

(Bloomberg) -- Expect relatively low demand of EU20b-EU30b at this week’s TLTRO-2 operation, which will have little impact on excess liquidity and rates at front end of EUR curve, BNP strategists including Patrick Jacq write in a client note.
  • Banks have already benefited from the first operation in this series to restructure their ECB-provided funding
  • TLTRO funds are good substitutes to covered bonds, but funding programs for this year are now almost fully completed
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Patrick Jacq (BNP Paribas SA)

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HALISTER: Glaxo Says Emma Walmsley to Succeed CEO Witty

Glaxo Says Emma Walmsley to Succeed CEO Witty

(Bloomberg) -- GlaxoSmithKline says Emma Walmsley, its CEO of Consumer Healthcare, will succeed outgoing CEO Andrew Witty.
  • NOTE: Witty will step down in March, after almost a decade in the top job, following a tumultuous couple of years in which he has faced criticism over the company’s performance
  • Statement
Alert: HALISTER
Source: BFW (Bloomberg First Word)

Tickers
GSK LN (GlaxoSmithKline PLC)

People
Andrew Witty (GlaxoSmithKline PLC)
Emma Walmsley (GlaxoSmithKline PLC)

Topics
Who's News - People

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(2) *GLAXO NAMES EMMA WALMSLEY TO SUCCEED ANDREW WITTY AS CEO

*GLAXO NAMES EMMA WALMSLEY TO SUCCEED ANDREW WITTY AS CEO

Alerts: HALISTER, HALISTER1
Source: BN (Bloomberg News)

Tickers
GSK LN (GlaxoSmithKline PLC)

People
Andrew Witty (GlaxoSmithKline PLC)
Emma Walmsley (GlaxoSmithKline PLC)

Topics
Management Changes
Who's News - People

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HALISTER1: BOJ Buying Lifts Japan Bonds, Led by Super-Longs: Deutsche

BOJ Buying Lifts Japan Bonds, Led by Super-Longs: Deutsche

(Bloomberg) -- JGBs rising after strong result of BOJ’s super-long bond purchases, especially maturities of exceeding 25 years, says Makoto Yamashita, chief interest rate strategist at Deutsche Securities.
  • Result of bond purchases suggest domestic investors may be reluctant to reduce JGB holdings amid concern over result of BOJ policy action, says Tokyo-based Yamashita by phone today
  • Market participants likely holding onto steepening positions as BOJ seen wanting a steeper JGB yield curve
  • If BOJ deepens negative interest rate policy, short-term yields may decline
  • NOTE: BOJ’s offer to buy maturities of more than 25 year drew selling interest worth 2.12 times amount the central bank intended to buy vs 2.21 at previous operation on Sept. 14
  • 10-year yield falls 1.5 bps to -0.060%, 20-year yield declines 4 bps to 0.405% and 30-year yield slides 4 bps to 0.510%
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Makoto Yamashita (Deutsche Bank AG)

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HALISTER1: Inverted Offshore Yuan Curve Triggers Carry Trade Unwinding

Inverted Offshore Yuan Curve Triggers Carry Trade Unwinding

(Bloomberg) -- Unwinding of yuan carry trades is picking up as CNH liquidity tightens with the approach of yuan’s inclusion into SDR and ahead of national holidays from Oct. 1, analysts say.
  • “In the past when yuan liquidity was ample and overnight funding was cheap, market players entered arbitrage trades in the forwards market by borrowing short-term funds and then lending out long-term funds,” Becky Liu, senior Greater China rates strategist at Standard Chartered Bank says
  • “A lot of those positions were squared off when the CNH interest rate curve inverted last week, causing the market reaction to become even more severe.”
  • Overnight CNH Hibor drops to 12.135% versus 23.683% yesterday; it was 1.373% on August 31, still above;
    • One-week CNH Hibor at 7.984% and 1-month Hibor at 6.008%
  • “Global markets external risks are increasing this week, and while we expect the Fed to raise rates in Dec., we cannot rule out a rate hike this month,” Cheng Shi, Head of Research at ICBC International Research says.
    • “PBOC probably is tightening yuan liquidity to prepare for this small likelihood.”
  • “Yuan depreciation expectations were too strong after the G-20 meeting and from PBOC’s perspective it needs to control the pace of yuan depreciation, containing the currency within 6.7,” Harrison Hu, chief Greater China economist at RBS says. “In the near term, yuan remains on the path of devaluation, which will inevitably affect the pace of yuan internationalization.”
  • Hong Kong’s yuan deposits has shrunk 33.5% from a peak of 1 trillion yuan ($149.9b) to 667b yuan amid depreciation pressures, according to HKMA data
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Becky Liu (Standard Chartered PLC)
Cheng Shi (Industrial & Commercial Bank of China Ltd)
Harrison Hu (Royal Bank of Scotland Group PLC)

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