Halister News

(Bloomberg) -- Any sell-off in BTPs in the aftermath of Italy’s constitutional referendum would offer an opportunity to reset long positions into peripheral euro government bonds, Nick Eisinger, London-based strategist at Vanguard Asset Management, says in phone interview.

• Favors Italian vs Spanish bonds as BTP market offers better liquidity and has a more developed futures market
  • Doesn’t see the referendum, to be held this year, leading to any systemic issue for Italy as investors are getting used to dealing with the political uncertainty
• In event of “No” vote and PM Renzi stepping down, it remains unclear how the anti-establishment M5S party would have any major representation in any credible government in Italy
• Says Italy would be in “good company” if it issues ultra- long debt, as Spain did the same last May before holding general elections in June, and Belgium did as well
• “It’s unclear how much rally into the market you can extract from saying a government has been put together in Spain. The market doesn’t seem to really care,” he says
• Any 50-year bond issuance from Italy would probably meet good demand from investors
• Expects ECB meeting to have a broadly neutral outcome today and at the margin be negative for euro zone rates; says there could be a slight sell-off which is unlikely to last long
• Says if ECB turns out to be a marginally positive event today for euro zone rates, it would significantly increase chances of Italian Treasury issuing 50-year bonds, probably next week
• Doesn’t expect the European central bank to change any of the parameters that apply to QE program at today’s meeting, as there hasn’t been a deterioration in euro zone data lately
• Says if Draghi gives hints of a removal of the capital key anytime soon, it would trigger a rally in peripheral bonds; however, this scenario looks unlikely
• NOTE: ECB preview here
• NOTE: Italy said to be checking with investors on a 50Y bond, may come next week, WSJ reports; Natixis says Italy may face cold response for any 50-yr bond offer

(Bloomberg) -- Pioneer Investments is in favor of increasing Italy duration risk while not boosting country risk, head of government bonds Cosimo Marasciulo says in a phone interview, amid report the treasury has spoken with large investors about a 50-year bond sale.

• “It makes sense to buy the longer end of the curve against the shortest one, not to increase the country risk; this is what we would do with an Italian ultra-long bond,” he says
• Pioneer says would consider the long-end bonds sale and its interest would depend on market demand
• Long part of the curve very interesting as ECB currently doesn’t buy beyond the 30-year duration; the sector would benefit from a tweak in ECB purchases which could be announced at today’s meeting
• ECB today “a close call"; the central bank could extend QE program, but it also has to address the bund scarcity issue
• Pioneer took profit on a long Italy trade opened after Brexit as the scope for further gains is limited; now neutral on the country, planning to go into the last quarter of the year with a neutral stance on peripherals given rising political risk in the area, including Italian referendum on Constitutional reform

• NOTE: Italian treasury has spoken with large investors in recent weeks about its first ever 50-year bond sale, WSJ reported earlier
• NOTE: Italy could face poor demand for 50-year bonds because yields are already very low and political uncertainty, according to Natixis

(Bloomberg) -- Hong Kong Monetary Authority recently noticed some banks may have applied stringent customer due-diligence measures that are disproportionate to the likely risk levels of customers, it says in circular on website.

• Cases have resulted in many unsuccessful account opening applications and/or unpleasant customer experiences
• HKMA to work with banks on identifying money laundering and terrorist financing risks
• HKMA to work with banks on implementing anti-money laundering and counter-terrorist financing requirements

Link to Statement:Link

(Bloomberg) -- Recent price action in EUR rates market can only be driven by expectations for additional ECB accommodation to be announced today, BNP Paribas strategists write in client note.

• Risk of disappointment raises potential for 2Y-10Y spread to steepen
• Recent positioning is a bet on ECB decision being favorable for tighter spreads and bull-flattening
• Market reaction to any ECB QE extension beyond March 2017 depends on parameter changes to the purchase program
• Most likely outcome will be decision to allow purchases at yields below the deposit facility rate, which will fuel steepening pressures in core markets
• If ECB decides to increase purchase limit per ISIN, bull- flattening may intensify