Halister News

(Bloomberg) -- Portugal to sell 4.95% 10/2023 and 4.1% 04/2037 for EU750m-EU1b at 11:30am CET.

• Outright concession, PSPP demand in the issue should prove supportive, concerns linger over upcoming DBRS rating announcement

• Mizuho (Peter Chatwell)
  • PGBs have been worst affected by ECB disappointment last week, sell off has been compounded by supply concession
  • 10Y yields are ~20bps higher than at last PGB auction in August; in RV, both issues are fairly illiquid off the run bonds trading close to fair value on fitted curve

• ING (Benjamin Schroeder, Martin Van Vliet)
  • 10y PGBs yields have edged above 3.20%, upper end of the range since March, now close to 3.40%
  • Many investors may still be wary about PGBs as long as the uncertainty remains surrounding the DBRS rating verdict in October, given implications for PSPP- eligibility

• BBVA (Jaime Costero)
  • After today’s sale, Portugal’s will have executed ~89% of target borrowing for 2016
  • 7y issue looks cheap on the curve, as seen on fly vs 06/2020 and 07/2026, which trades ~75bps, well above range average of ~63bps; spread vs 06/2019 is also at upper end of the range, which could support the auction
  • 20Y bond has outperformed on the curve recently; cross- market, the issue could be bought in the box as 20s30s steepener vs BTP 20s30s flattener

• Commerzbank (Rainer Guntermann, David Schnautz)
  • 7Y issue was last increased in Nov. 2014, before QE; as a result PSPP buying may have been disproportionately active in this bond on the PGB curve, which should be beneficial for supply
  • Expect 7y to see majority of the allocation, in the region of EU0.65b

(Bloomberg) -- Germany to sell 2.5% 07/2044 for EU1b at 11:30am CET.

• Analysts optimistic on 30Y sale given recent selloff, specialness in repo, prospect of ongoing QE buying and limited supply for remainder of the year

• ING (Benjamin Schroeder, Martin Van Vliet)
  • Following the selloff after the latest ECB meeting, valuation levels are now less stretched; absolute yield level is highest since June; bond offers 3bps pickup vs 07/2042, top-end of 2y range
  • Recent re-tightening in ASW may prove demand supportive, as could the bond’s repo specialness
  • Potential removal of depo-rate floor for PSPP purchases in Dec. still looms large; however, may allow for some temporary scarcity-induced richening up to the meeting

• Mizuho (Antoine Bouvet)
  • This may be last tap of this off-the-run issue, as new benchmark likely next year
  • Bond is marginally cheap to 08/2046 but expect decent demand because of its specialness on repo
  • Outright concession plus repo richness make this attractive for macro longs, especially given the probable lack of subsequent supply

• Commerzbank (Rainer Guntermann, David Schnautz)
  • Previous two taps of this bond in Feb., May were both technically covered, which is already a good omen for the auction
  • Given ECB didn’t tweak QE parameters last week, PSPP buying is skewed toward longer-dated maturities on German curve, despite the recent selloff making more bonds in shorter maturities eligible
  • Prospect of ongoing QE buying, lack of supply at least until year-end in this bond should more than outweigh last week’s poor 10y tap

Economic Release Details: {BTRR1DAY Index ECOD} --TONY JORDAN

(Bloomberg) -- After the weakness seen in credit spreads late last week and on Monday, risk assets may still be vulnerable, but there is no investor capitulation. Notwithstanding the polemic surrounding the Fed funds outlook, there is still broad assumption that central banks will continue to fuel risk appetite with ’low for longer’ rates, Bloomberg strategist Simon Ballard writes.

• Asian/Australian credit mkts weaker overnight, but EUR equity futures point to higher open, underpinned risk assets
  • Primary mkt remains main source of liquidity; 11 deals priced yday in busiest session since May
• Specter of Fed rate increase still looms, while focus today will be on U.K. jobs and BOE tomorrow

• Risk Appetite Model consolidating after seeing recent rise in volatility; still sits in ’risk on’ quadrant of the chart
• * Bloomberg Barclays Eur-Agg Corporate index closed yday at 108bps (-1bp); Bloomberg Barclays Eur HY index closed at 385bps (-4bps)
• CDX IG closed -0.01bp at 79.67 in overnight session; iTraxx Asia Ex Japan IG currently +0.3bps at 112.07 and iTraxx Australia quoted +1.6bps at 100.12

NEWS

• Corporate News
• Bayer Said to Propose Higher Monsanto Offer of $129 a Share
• Hermes Drops Mid-Term Revenue Target as Luxury Outlook Worsens
• Richemont Forecasts 45% Decline in First-Half Operating Profit
• Alliance Pharma Says 1H Revenue Doubled, Confident in Outlook
• Galliford Try Says FY Profit Reaches Record, Raises Dividend
• Cambian 1H Revenue Grew 14%, Says 2H Performing in Line
• Lastminute.com 1H Above Its Expectations, Raises Ebitda Guidance
• Imaginary VW Deadline Prompts Flood of Real Investor Lawsuits
• Vodafone NZ Fined for Making False Price Representations

• Financial News
• Commonwealth Bank pays $180,000 in penalties after personal overdrafts breach
• Japan Banks on Wildest Ride Since Global Crisis Before BOJ
• Danske CEO Says Regulators Should Wait With Further Rules

• Credit Rating News
• S&PGR Lowers TPC Group Inc. Rtg To ’CCC+’ From ’B-’; Otlk Neg
• Fitch Affirms Weichai Power at ’BBB’; Outlook Stable
• India’s First Offshore Basel III AT1 Issue A Positive: Fitch

• Other News
• South Africa Bank That Gave Zuma Loan Says It Sticks to Criteria
• China Seen Investing Too Much in Power Plants That Burn Coal
• Roy Hill Iron Ore Mine Won’t Reach Capacity This Year

ANALYST VIEWS

• A positive yield strangely spooked the market! We would think that given the difficulties in getting any semblance of decent growth and inflation back into the system, they have to be heading most likely lower (negative) again: creditmarketdaily.com

NEW ISSUES

• ANZ New Zealand EU1b 7Y Covered MS +12
• Axalta Coating Systems EU450m 1/2025 NC3 3.75%
• Eaton Capital EU550m 8Y MS +65
• Eni EU900m 8Y MS +55, EU600m 12Y MS +70
• HSH Finanzfonds EU750m 8Y MS -2
• KWE GBP200m 3.95% 6/2022 Tap UKT +320
• Novartis Finance EU1.25b 7Y, EU500m 12Y Bonds
• Novomatic EU500m 7Y MS +170
• VF Corporation EU850m 7Y MS +57
• Hertz Holdings EU225m 5NC2 4.25% Area, +/-0.125%
• National Grid Gas GBP3b 4-Part Deal
• 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.

--SAM NAGARAJAN

Economic Release Details: {INFINFY Index ECOD} --KARTHIKEYAN SUNDARAM