Halister News

(Bloomberg) -- BofAML last week recommended scrapping bets on lower real yields and scaling into real rate shorts based on “the mix between a possible change in central bank purchase programs (particularly by the BoJ) and increasing likelihood of fiscal stimulus in the U.S.,” strategists led by Shyam Rajan said in note.

• The shift also has support from these factors, they said:
  • Potential for risk-parity deleveraging driven by negative turn in correlation between stocks and nominal yields; “risk parity underperformance has historically meant higher real rates and lower breakevens”
  • Strong inflows to TIPS funds YTD “despite lackluster breakeven performance,” a sign investors “are chasing price action in real yields”
  • Declining Fed custody holdings of USTs, pointing to a “gradual unwind of reserve demand” that has benefited U.S. real rates over last 15 yrs

(Bloomberg) -- Output of factories, mines and utilities seen falling 0.2% in Aug. after rising 0.7% in July (forecast range -0.5% to +0.2%); data track volume of production.

• July’s increase was largest since Nov. 2014
• Capacity utilization rate seen at 75.7% last month vs 75.9% prior month (forecast range 75% to 76%); tracks industrial capacity in use as opposed to sitting idle

(Bloomberg) -- Nordea says in statement Thursday it stopped delivering EU500 notes in March 2015 to small Danish currency exchange desks after being informed that a local station will air a documentary on the businesses.

• TV2 documentary to focus on exchange desks that were found to have illegally laundered money; Nordea had delivered notes to the exchanges: Nordea
• Nordea says that in addition to halting that practice, it also stopped taking new clients that ran foreign currency exchanges and money transfer firms, and it has now completely exited that business

(Bloomberg) -- While the recent increase in global bond yields is creating opportunities for investors, markets may see further selling on technical factors, fund managers say.

• Aberdeen and Henderson wait for more clarity from the BOJ next week before making their next move
• Janus and Old Mutual expect to see further volatility and see no reason to buy in current weakness
• Yields from Japan to Germany to the U.S. have climbed in the past week amid signs that central banks may gradually remove policy accommodation

• ABERDEEN AM
• Portfolio manager Patrick O’Donnell says he remains overweight on European duration and is looking to add risk
• Expects global rates to rally; will continue to keep flattener trades on until there is a higher probability of real fiscal action globally
• Uncertainty around BOJ’s apparent re-appraisal of its monetary policy is deterring investors from buying into market selloff
  • MORE

• HENDERSON
  • Fund is looking to buy into current market volatility as central banks provide a supportive backdrop, but remains short for now awaiting further news on BOJ’s next steps, according to Mitul Patel, head of interest rates
  • The firm is short bunds via put options and holds curve steepeners; it shifted positions ahead of last week’s volatility
  • BOJ decision on Sept. 21 is a concern given there does seem to have been a shift away from a flattening stance
  • MORE

• JANUS CAPITAL GROUP
  • Portfolio manager Ryan Myerberg says in interview he prefers to be cautious on risk as “when everything starts to sell off together, bond, stocks, credit, EM, it is a warning sign”,
  • Cautious on bonds duration in the near term and expects the curves to continue to steepen; in the longer term, doesn’t see any natural pressure for the rates to go significantly higher given the lack of growth and still- low CPI
  • Also cautious on investment-grade credit in Europe where the valuations are tight; sees better opportunities in U.S.
  • Says the next couple of months are crucial for investors as there is a lot of uncertainty on what the central banks will do, and asset prices have become reliant on accommodative monetary policy
  • The recent selloff has been partially triggered by investors questioning the ability of the central banks to continue to deliver; the very stretched positioning into the market also played a role and some repricing was probably needed
  • Doesn’t see any switch toward fiscal policy as positive for bonds

• Old Mutual
  • Firm has been short duration with steepeners in core government bonds, and owns CDS to hedge against credit exposures, portfolio manager Nicholas Wall says in interview
  • While we see many reasons to own bonds in the medium term, more “washouts” are possible and bond markets can overshoot in both directions
  • If the market perceives that the pace of monetary easing is slowing, the large number of carry trades in all asset classes may unwind; any selloff could be accentuated given the large amount of assets that reside in strategies such as risk-parity; says these strategies provide great insurance when bonds and stocks are negatively correlated, but can accentuate market moves in both directions when correlations go positive

• JPMORGAN AM
  • Favors corporate debt over stocks and government bonds, global market strategist Vincent Juvyns says in a phone interview
  • Time to be selectively overweight on emerging-market asset classes, especially in emerging-market debt corporates and local rates
  • Recent market selloff has been triggered by a lack of action at the ECB’s latest meeting
  • “Nothing big is happening”; market sentiment remains pretty much dependent on the central bank decisions
  • MORE

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