Halister News

(Bloomberg) -- FOMC’s rate projections are seen as drawing more attention than any balance-sheet announcement Wednesday, based on published research by analysts; tapering of Fed’s $4.47t portfolio is seen as a given, with rates unchanged.   

• RBC sees potential for 2020 median dot to show Fed’s tightening cycle is coming to an end; FTN, Morgan Stanley say long-run dot could fall to 2.75% from 3%; tapering of balance-sheet could send yields higher for longer over time: Bloomberg Macro View
• NOTE: MBS analysts retain recommendations amid expectations that Fed will announce unwinding of balance sheet on Wednesday

BofA (Michelle Meyer, others)

• Any shift lower in 2019 or longer-run dots would support a steeper curve, given potential for a more patient Fed to allow for a shift upward in inflation
• Real question is when the Fed will hike again and whether it will continue hiking in next two years
• MORE

Bloomberg Macro View (Garfield Reynolds)

• Fed’s pruning will send yields higher for longer
• Plan to trim balance sheet has plenty of potential to end with a bang as three-decade bull run for bonds gets killed off
• MORE

Morgan Stanley (Matthew Hornbach, others)  

• Lower median long-run dot is the biggest risk to call by Morgan Stanley economists for status quo; dot could fall to 2.75% from 3%  
• Next biggest risk is a lower median 2018 dot, possibly falling to 1.875% from 2.125%, followed by possibility that Yellen takes a “more dismissive line” toward downside surprises in inflation data 
• Balance-sheet normalization should ironically attract the least amount of attention
• Investors should enter tactical UST 2s30s flatteners, given risks to outcome of FOMC meeting

FTN (Chris Low)  

• Long-run dot could drop to 2.75% from 3% if just two participants shift expectations a quarter-point lower
• More likely that the 2017 dot will stay the same and the 2018, 2019 and long-run dots will shift
• Combined message of Fed’s summary of economic projections and Yellen’s press conference will tilt dovish

JPM (Michael Feroli)

• FOMC’s dots will be “most-watched development” of meeting
• While more FOMC participants may expect no more hikes this year relative to June forecasts, it won’t be enough to bring down median dot
• Fed will continue to be at odds with current market pricing for 2018-2019 outlook; see MORE
• In separate note, strategists led by Matthew Jozoff said a JPM survey of MBS investors found they have a “nonchalant attitude” toward Fed’s tapering  

RBC (Tom Porcelli, Jacob Oubina, Michael Cloherty)  

• Release of 2020 dot for first time raises question of whether policy makers will show tightening cycle coming to an end
• Cycle could effectively end with fed funds rate at 2.9% in 2019 or 3% in 2020; alternatively, policy makers might show hikes beyond 3% neutral rate in 2020  
• MORE

Wrightson ICAP (Lou Crandall)

• Big question is how Fed will frame debate about possible hike in December
• Wrightson’s view is that Fed should tighten again in December, but data may not let policy makers do it
• MORE

--With assistance from Alexandra Harris. To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Mark Tannenbaum

(Bloomberg) -- Following are forecasts for today’s economic releases as compiled by Bloomberg News.

• NAHB 67; range 64 to 68 (32 estimates)
• In August, the index rose to 68, a three-month high; readings greater than 50 indicate more respondents reported good market conditions
• Builders were upbeat about prospects for the labor market as well as interest rates near historic lows

To contact the reporters on this story: Chris Middleton in Washington at cmiddleton2@bloomberg.net; Vincent Del Giudice in Denver at vdelgiudice@bloomberg.net To contact the editors responsible for this story: Alex Tanzi at atanzi@bloomberg.net Kristy Scheuble

(Bloomberg) -- Instructure was upgraded to overweight at Morgan Stanley on expectations that it will show stronger revenue growth and margins. The company’s move out of the higher-cost, development phase of its Bridge product make it one of the more compelling online education tech companies in the SaaS sector for efficient market penetration, analyst Brian Essex writes in a note.

• Shares rose as much as 8.7%, to the highest ever
• Expects the company to outperform the sector in 2018
• Greater market penetration is expected given its low customer acquisition costs; favors the company’s enterprise exposure
• Says legacy competitors are burdened with more complexity, on-premise solutions and product release delays
• Increases 2019 Ebitda to $12.1mm from $9.1mm
• Boosts PT to $39 from $35
• NOTE: 8 buys, no hold, no sells; avg PT $39: Bloomberg data

To contact the reporter on this story: Kristy Westgard in New York at kwestgard1@bloomberg.net To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net Christiana Sciaudone

(Bloomberg) -- Bonds from India, Turkey and South Africa are currently more attractive than European and U.S. HY debt, as the high demand for assets from these emerging markets helps check any volatility in their currencies, Richard Hodges, manager of Nomura Asset Management’s Global Dynamic Bond Fund, says in interview.

• Hodges has 7.5%-8% of his fund’s holdings in the so-called Indian Masala bonds -- rupee debt issued offshore
  • “I much prefer to have 7% in India Masala than in U.S. or euro HY; it’s a much safer asset”
• “Any volatility in these countries’ currencies because of political instability is short-lived, which reflects the demand for assets” from emerging markets
• Says his HY holdings are “very focused,” with a bias toward companies based in peripheral euro area -- Italian, Spanish and Portuguese names -- “because I believe in the dynamics of those improving economies”
• The fund has a “reasonable exposure” in bonds of Spanish construction company Aldesa; “dynamics are improving, they are winning contracts that will be beneficial to the balance sheet, and the bonds are trading at very distressed levels”
• Sees “great opportunities in the Irish banking sector”
• Expects that after German and Italian elections “there is going to be much more talk about the introduction of euro bonds, as part of increased rhetoric regarding greater fiscal integration”
• On U.S. Treasuries, “one could very much argue that the concerns about North Korea have been discounted already in U.S. bond yields. Ten-year yields could well go to 2%, and at that point you’d probably want to buy puts on bond markets to express Treasury yields going back up to 2.25%”
• In German government bonds, the fund is “significantly long call options”

--With assistance from Erhard Krasny, Joerg Engelbert Jaeger and Lukanyo Mnyanda. To contact the reporter on this story: David Verbeek in Frankfurt at dverbeek1@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma