HALISTER1: INSIDE TAIWAN: Yield Curve Flattens; TWD Falls on USD Strength

INSIDE TAIWAN: Yield Curve Flattens; TWD Falls on USD Strength

(Bloomberg) -- Govt bond yield curve bull-flattens amid speculation banks and life insurers have to buy longer-dated debt; Taiwan dollar weakens as U.S. dollar extends advance.
  • Yield on 20-yr bond falls 3 bps to a fresh record of 1.0125%
    • Yield on 5-yr bond steady at 0.4950%, while 10-yr yield little changed at 0.6380%
  • Local banks need to buy long-end bonds to digest excessive liquidity as average mortgage loan rate falls below 1.7%, says Samuel Lee, bond trader at Yuanta Sec Invest Consulting
    • Expects 10-yr yield to decline toward 0.62% and 5-yr yield to trade within 0.47%-0.50%
  • Yield curve likely to flatten as life insurance companies’ demand for Taiwan govt bonds is rising in August while their appetite for dollar debt declines due to a strong TWD, Standard Chartered analysts led by Kaushik Rudra and Lawrence Lai write in a note today
    • Short-end rates are anchored by ample liquidity and weak growth outlook
    • Outlook for TWD is negative, due to rising nominal effective exchange rate and still anemic growth
  • TWD falls 0.2% to 31.772 per U.S. dollar
  • Overseas investors sell local stocks for fourth day, offloading net NT$300.1m ($9.4m)
    • Taiex index falls 0.2% to 9,017.38
  • Goldman Sachs remains cautious on 2H outlook for Asian exports, economists Irene Choi and Goohoon Kwon wrote in note yday, citing Taiwan’s weaker-than-expected industrial production
    • Chinese stimulus likely to wane and U.S. tech demand seems to be tapering off
  • NOTE: Industrial production declined 0.3% y/y in July vs est. 1.7% growth
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Goohoon Kwon (Goldman Sachs Group Inc/The)
Irene Choi (Goldman Sachs Group Inc/The)
Kaushik Rudra (Standard Chartered PLC)
Lai Yew (Oriented Media Group Bhd)
Lawrence Lai (Standard Chartered PLC)

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UUID: 7947283

HALISTER1: GBP Rate Vols Compression vs EUR Greater Further Out the Grid

GBP Rate Vols Compression vs EUR Greater Further Out the Grid

(Bloomberg) -- GBP rates volatility extends decline toward EUR equivalents with greater compression seen further out the vol grid in long-tail gamma and medium-term vega, Bloomberg strategist Tanvir Sandhu writes.
  • GBP vs EUR 5y5y normal vol spread is 7bp/annual and has been fading from post-Brexit high of 21bp/annual; see chart here
    • Compressing after BOE signaled a floor for the Bank Rate, causing the distribution of market rates to concentrate into a smaller range, see more here from Aug. 7
  • See chart here on GBP vs EUR 3m2y normal vol spread which remains stable post BOE, now at 7.5bp/annual
  • OIS forwards currently pricing 68% probability of a 15bp BOE rate cut to 0.10% by Dec.
  • GBP ATM vols may decline as rates move closer to zero due to the asymmetrical distribution ahead and lower delivered vols; see more here from Aug. 2
  • NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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UUID: 7947283

HALISTER1: AUCTION PREVIEW: Bobl Seen as Rich Outright, Cheap Versus Peers

AUCTION PREVIEW: Bobl Seen as Rich Outright, Cheap Versus Peers

(Bloomberg) -- Germany to sell 0% 10/2021 bonds for EU4b at 11:30am CET. While the bond is not eligible for ECB QE and outright yield levels aren’t seen as attractive, analysts note that it’s cheap in the sector.
  • Mizuho (Peter Chatwell, Antoine Bouvet)
    • This issue, 5Y sector has underperformed noticeably in micro-RV going into supply despite retaining value on repo
    • Auction to help ease pressure for borrowers of this bond as this is only its first reopening
    • However, the bond trades below –0.50% in yield terms, implying that even if the ECB were to cut rates the issue would remain ineligible for PSPP
  • Societe Generale (Marc-Henri Thoumin)
    • Bond is the fourth in the delivery basket for OEU6 contract; 10/2021 has cheapened slightly more than its neighbors of late, though remains limited in absolute terms relative to the curve
    • 5Y sector has underperformed shorter-dated bunds; the 2019/2021 spread has steepened ~3.5bps in z-spread since mid-August
    • Ultra low level of rates (5Y OBL at -0.52bps) is a consistent source of discouragement at auctions, especially in Germany
  • JPMorgan (Gianluca Salford)
    • 5Y benchmark was issued in late July at very cheap levels; benchmark discount relative to surrounding bunds of around 3.2bps
    • Bond has richened since then though 10/2021 still trading with a benchmark discount of ~2.2bps; still appears cheap in current QE environment
  • UniCredit (Luca Cazzulani)
    • Latest 5Y auction attracted weak demand with 10/2021 selling at -0.51%; 5Y has traded sideways since, now ~1bp richer
    • In RV, the issue is the cheapest bond in the 2018-2025 area on the German curve; looks attractive especially versus bonds in the 3Y-4Y area of the German and Dutch curves, such as Obl 10/2019, bund 09/2020 and DSL 07/2020, which look relatively rich versus neighbors
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Antoine Bouvet (Mizuho Financial Group Inc)
Peter Chatwell (Mizuho Financial Group Inc)
Gianluca Salford (JPMorgan Chase & Co)
Luca Cazzulani (UniCredit SpA)
Marc-Henri Thoumin (Societe Generale SA)

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UUID: 7947283

HALISTER1: BOE Premium Signals Lack of Gilt Sellers; 10Y Target 0.26%: RBS

BOE Premium Signals Lack of Gilt Sellers; 10Y Target 0.26%: RBS

(Bloomberg) -- BOE had to pay an average premium of 2.2bps into yesterday’s buyback operation in 15Y+ sector, indicative of a lack of appetite to sell, RBS U.K. rates strategist Simon Peck writes in a client note.
  • See further curve flattening as strong performance of long gilts is likely to continue
    • Target 1% on 30Y gilts, see 10Y yield dropping to 0.26%
  • NOTE: RBS had previously targeted 0.50% in 10Y gilt yields
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Simon Peck (Royal Bank of Scotland Group PLC)

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HALISTER: Pfizer to Buy AstraZenca’s Small Molecule Antibiotics Business

Pfizer to Buy AstraZenca’s Small Molecule Antibiotics Business

(Bloomberg) -- Pfizer to acquire the development and commercialization rights to AstraZeneca’s late-stage small molecule anti-infectives business, primarily outside the U.S.
  • Agreement includes the commercialization and development rights to the newly approved EU drug Zavicefta, Merrem/Meronem and Zinforo
  • Under the terms of the agreement, Pfizer will make an upfront payment of $550m to AstraZeneca upon the close of the transaction and a deferred payment of $175m in Jan. 2019
  • In addition, AstraZeneca is eligible to receive up to $250m in milestone payments, up to $600m in sales-related payments, as well as tiered royalties on sales of Zavicefta and ATM-AVI in certain markets
Link to Statement:Link
Alert: HALISTER
Source: BFW (Bloomberg First Word)

Tickers
PFE US (Pfizer Inc)
AZN LN (AstraZeneca PLC)

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UUID: 7947283

HALISTER1: INSIDE ASIA: Asian Currencies Slip Ahead of Yellen; Won Drops

INSIDE ASIA: Asian Currencies Slip Ahead of Yellen; Won Drops

(Bloomberg) -- Currencies in Asia decline as investors prepare for the possibility of Fed hike signals from Fed Chair Yellen’s speech later this week. Won falls after North Korea successfully launched a missile from a submarine.
  • Investors may be taking profit or getting hedged going into Yellen’s speech at Jackson Hole, says Kay Van-Petersen, Saxo Capital global macro strategist. Expects Yellen to keep her options open. See roundup for speech scheduled for Friday
  • Bloomberg dollar index advances for a fourth day, after purchases of new U.S. homes unexpectedly jumped in July to highest level in almost nine years
  • Won drops as much as 0.9%, before paring losses, after the missile launch, which came after North Korea threatened a pre-emptive attack on South Korea for a joint U.S. military exercise
    • East Asia’s foreign ministers of Japan, China and South Korea hold first formal talks in five years in Tokyo this morning
  • China 10-year govt. bond yield rises 2 bps to 2.76%, after gaining 5 bps yesterday; same tenor sovereign bond yield in Japan drops 2 bps to -0.095%
  • Yuan falls with regional peers, as PBOC injects more expensive longer-term liquidity to signal concern over short-term borrowing used to buy bonds
    • The central bank adds funds in 14-day reverse repos today, first time since Feb. 12-mo CNY IRS was little changed at 2.52% after climbing 7bps yday
    • PBOC’s actions today indicate it’s resistant to broad monetary easing including RRR cuts as that could increase yuan depreciation pressure, Scotiabank Asia FX strategist Gao Qi writes in a note
    • Charts here to show why China hasn’t eased
  • Yen falls
    • Unless Yellen sends a clear message that a Sept. rate increase is possible, dollar is more likely to weaken, says Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking
    • BOJ is expected to buy super-long-term govt bonds from secondary market today, which will support JGBs, according to note from Mitsubishi UFJ Morgan Stanley Securities
    • Cabinet office to release monthly economic report for August
  • Aussie and kiwi decline as oil and commodities drop
    • BNP Paribas remain bearish on AUD & NZD, anticipates a hawkish message from the Fed will drive a USD recovery and pressure commodity prices, according to note today
    • Still, Citigroup says Aussie and Kiwi will draw investors because they offer highest yields among peers
    • NZ July trade balance came in at NZ$433m deficit vs. estimated shortfall NZ$325m
  • Southeast Asian currencies including ringgit and rupiah fall
    • Emerging markets in Asia are “back peddling on heightened uncertainty over U.S. Fed monetary policy,” according to a note from Oanda. “When economic uncertainty increases, the FX risk and carry positions tend to do poorly, so emerging markets fall under pressure.”
    • Ringgit is in its longest-losing streak in about a month as oil declines, with data showing U.S. stockpiles gaining to keep inventories at highest seasonal level in at least 30 years
    • Philippines imports in June probably rose 13.8% y/y after a 39.3% gain in May, according to median est. in Bloomberg survey; data due 9am local time tomorrow
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Kay Van-Petersen (Saxo Bank A/S)
Etsuko Yamashita (Sumitomo Mitsui Financial Group Inc)
Qi Gao (Bank of Nova Scotia Asia Ltd/Singapore)

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UUID: 7947283

HALISTER1: INDIA RATINGS: Global Offshore Cut; Jesons, Mafatlal Raised

INDIA RATINGS: Global Offshore Cut; Jesons, Mafatlal Raised

(Bloomberg) -- Here’s a roundup of Indian co. debt-rating changes.
  • To get this story sent to your inbox real-time, run NI INRATINGS , click on Display & Edit, then Set Alert Delivery
DOWNGRADES
  • Global Offshore Services
    • Term loan cut to BB from BBB+ at Care
    • Cites deterioration in ability to generate cash
  • Rochem Green Energy
    • Long-term loan facilities cut to D from C at Crisil
    • Cites delays in debt servicing
UPGRADES
  • H M Industrial
    • LT bank facilities raised to BB+ from BB at Care
    • Cites growth in total operating income, improvement in profitability
  • Jesons Industries
    • LT bank facilities raised to BBB from BBB- at Care
    • Cites consistent growth in sales volume
  • Mafatlal Industries
    • Fund-based facilities raised to BBB from BBB- at Care
    • Cites increase in scale of operations, improvement in operational performance
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
GWOS IN (Global Offshore Services Ltd)
MFI IN (Mafatlal Industries Ltd)
6583228Z IN (Jesons Industries Ltd)

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UUID: 7947283