Halister News

Economic Release Details: {GRIFPBUS Index ECOD} --JANA RANDOW

(Bloomberg) -- German August Ifo business climate est. 108.5 vs prev 108.3.

• German August Ifo current assessment est. 114.9 vs prev 114.7
• German August Ifo expectations est. 102.4 vs prev 102.2

(Bloomberg) -- Good risk/reward opportunity is opening up through Schatz options, recommend buying October expiry 112.10/20 call spread paying 1.5 ticks, to position for ECB potentially removing depo rate floor, writes RBC in a client note.

• ECB to contemplate removal of depo rate floor on PSPP purchases in Sept. 8 meeting, to avoid squeezing the long end of the bund curve
• Market would expect bund buying to shift significantly down the curve again, which should make Schatz richen again
• Estimate DUZ6 would trade ~112.15 if 2y yields were to retest all-time low at -70bps; maximum profit of 10 ticks seen if yield reached around -72.5bps
• In bund volatility, market is priced for the range to hold, despite event risk from Jackson Hole, Sept. ECB and BOJ meetings, and others over coming weeks
• See good risk/reward in owning October bund (expiry 23-Sep) 165 straddle on RXZ6, available for ~180 ticks, which translates to ~13bps yield breakeven

(Bloomberg) -- PBOC’s signal to deleverage is clear even as its decision to resume 14-day reverse repo operations will have little impact in near term, Bosera Funds research director of fixed income Chen Zhixin says.

• Central bank is in dilemma; on one hand it is alarmed by the increasing volume of repo transactions while on the other hand, it’s concerned that fast-pace deleveraging could trigger liquidity crush and financial risks
  • PBOC resumes 14-day reverse repo as a solution
• After liquidity crush in 2013, PBOC would be more cautious in using only pricing tool to prompt bond market deleveraging
• Move will not have material impact on bond market leverage
  • May mark the beginning of a series of curbing measures
• Expects PBOC to adjust funding cost and launch more policy guidances in the future to encourage gradual deleveraging
• Develeraging in the bond market will drive down return of wealth management products
• In the mid to long term, growth is decelerating and demand for loans will decline further, which will spur banks to put more capital into govt and policy bank bonds