Halister News

(Bloomberg) -- India govt bond yields are biased lower and may consolidate in Sept. as it approaches the 7% level, Mumbai-based Manish Wadhawan, managing director and head of interest-rate trading at HSBC, says in interview.

• Benchmark 10-year yield is currently at 7.10%; dropped to 7.08% last month, levels last seen in 2009
• “I don’t see the market overheated, no signs of worry even at 7%,” says Wadhawan
  • Yield curve has flattened as spreads have collapsed
  • Further flattening looks difficult unless market starts to build in expectations of a bigger-than-25 bps cut
  • “A large part of the bond rally has happened and is getting reflected in prices. From here, market will seek more information,” says Wadhawan
• Improved macro-fundamentals in terms of lower current- account deficit, controlled fiscal deficit and low inflation have helped the current bond rally
• A rate cut would definitely help bonds, but keeping system liquidity neutral will be equally important
  • RBI’s OMOs have infused liquidity and taken away some of the long-end supply
  • Sept. and Oct. will be in liquidity surplus; sees systemic liquidity surplus rising to 1t rupees ($15b) ahead of the non-resident deposit redemptions and then returning to neutral
• Govt bonds aren’t seeing large incremental demand from foreigners as most are adequately stocked up
  • 95% of govt bond limits available to foreigners have been utilized, NSDL data shows
• NOTE: RBI reiterated in Aug. it will front-load liquidity needs of the banking system ahead of an est. $20b outflow in maturity repayments to non-resident Indians starting this month
• NOTE: New RBI chief Patel faces first test as $20b outflows lined up
• NOTE: Patel takes charge at India’s central bank with eye on inflation

(Bloomberg) -- U.K. to sell 1.5% 07/2026 gilt for GBP2.5b at 11:30am CET; analysts expect strong demand given large cash-flows, BOE operations, large index event, small concession.

• NOTE: GBP5.1b of coupons and GBP18.1b of redemptions will be eligible for reinvestment this week

• Citi (Saumesh Dutta)
  • Heavy cash flows and upcoming index events may benefit the auctions, FTSE UK Gilt All Stock is projected to extend by 0.28 yrs due to redemptions on Sept. 7
  • Issue has started to cheapen vs surrounding issues on the 09/2024-07/2026-12/2027, showing some concession
  • Low level of outright yields is not denting auction demand, largely thanks to the BOE buyback; auction likely to be well supported despite no clear signs of value

• JPMorgan (Francis Diamond)
  • Expect strong demand at auction given ongoing QE program, upcoming index events, increase in auction participation observed over the past few months
  • 10Y sector looks cheap ~3.3bps cheap on 2s10s30s vs level of 10Y rates

• RBC (Peter Schaffrik)
  • Bond has cheapened marginally vs neighbors both on yield and ASW basis, though has performed well of late, indicating possible end-user demand; sector has shown broader concession on the 5s10s30s curve
  • Relative cheapening, coupon and redemption cash flow due tomorrow, as well as the ongoing BOE reverse auctions, should all be supportive of the auction today

(Bloomberg) -- German factory orders were weaker than expected for the fourth-straight month in July, increasing the risk that the reality of the recovery does not match expectations in 3Q, Scotiabank strategist Frederic Pretet writes in e-mailed comments.

• Data release surprising as the IFO indicator rose in the early summer; latest IFO dropped sharply, so further weakness may be seen
• Weak trend in factory orders brings downside risk to German industrial production data due tomorrow
  • Risk of negative July data after the rise in June

(Bloomberg) -- Market volumes likely to continue picking up this week as traders and investors return to work. Notwithstanding the U.S. holiday yesterday, the primary market delivered ~EU4.7b of liquidity and another busy session is expected today, Bloomberg strategist Simon Ballard writes.

• Risk assets gaining in Asia overnight and S&P500 futures trading higher should help underpin risk appetite this morning
• Secondary cash bond spreads edged tighter again yesterday and the quality curve flattened further as higher-yielding assets outperformed on persistent hunt for yield
  • Bloomberg Barclays Eur-Agg Corporate index closed yday at 107bps (-1bp); Bloomberg Barclays Eur HY index closed at 355bps (-4bps)

• Risk Appetite Model shows further steady decline in volatility and spread dispersion; new ytd lows
• CDX IG closed -0.1bp at 75.90 in overnight session; iTraxx Asia Ex Japan IG currently -0.6bps at 111.06 and iTraxx Australia quoted -0.6bps at 97.01

NEWS

• Corporate News
• Bayer Sweetens Monsanto Bid Again as Takeover Talks Advance
• Formosa Petrochemical Aug. Sales Fall 9.1% M/m to NT$41.7b
• Redrow FY Revenue Rises 20%; Says On Track for Further Growth
• Zumbtobel 1Q Net Rises 37% After Cost-Saving Measures Kick In
• Siemens Taps Big-Battery Demand in Growing German Storage Mkt
• General Motors Settles Next Federal Ignition-Switch Cases Set for Trial
• Airbus Wins $6.5 Billion Orders From Vietnamese Carriers

• Financial News
• Austria Opens Final Chapter in $12 Billion Heta Debt Dispute
• Singapore to Make More Robust Risk Assessment of Finance Firms
• NAB Considers Tier 2 Aussie Bond Deal, Plans Investor Update

• Credit Rating News
• Alinta Energy Rating Raised to BB From BB- at S&PGR
• S&PGR Affirms TPE ’BB’ Issue Rating; Outlook Stable

• Other News
• ECB Faces Bond-Buying Shuffle With QE Extension on the Cards
• Australia 2Q Net Exports Cut 0.2% Pt From GDP, Est. Flat
• After Summer of Profits, America’s Bond Traders Are on Edge

ANALYST VIEWS

• Investors have suddenly seen their animal spirits revived with enthusiasm towards the U.S. financials encouraging US$1.4bn into the sector last week. In a way, this is a contrarian position against the yield curve flattening any further or indeed inverting: Jefferies
• The default rate is at low levels and event risk, news flow and the like not really suggesting we ought to be concerned. The grind is excruciating!: creditmarketdaily.com

NEW ISSUES

• Aviva GBP400m 33NC13 Tier 2 UKT +363
• BAT International Finance GBP650m 36Y UKT +107
• CFF EU1b 10Y Covered MS -5
• Credit Mutuel Nord Europe EU300m 10Y T2 MS +195
• Hemso Fastighets EU500m 10Y MS +77
• Land NRW EU500m 0.625% 7/2031 Tap MS -1
• Paragon Group GBP150m 10NC5 Tier 2 7.25%
• UBI Banca EU1b 10Y Covered MS +19
• 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.

(Bloomberg) -- All surveyed economists forecast the RBA will hold rates at today’s meeting, the last for outgoing Gov. Glenn Stevens.

• The focus is shifting to whether the RBA eases in November, say Mizuho FX strategists; if the statement signals RBA’s monetary stance will return to neutral or fails to suggest future easing, Aussie could strengthen further