HALISTER1: RESEARCH ROUNDUP: Indian Bond Rally to Extend on Yield, Monsoon

RESEARCH ROUNDUP: Indian Bond Rally to Extend on Yield, Monsoon

(Bloomberg) -- Indian govt bonds rally looks set to extend, thanks to a healthy monsoon, renewed surplus in bank liquidity and hunt for yields as investors face declining returns around the world, analysts say.
  • 10-year yield fell four straight weeks, dropping 23 bps to trade at 7.28% currently; closed at 7.27% on July 15, lowest in 3 years on closing basis
  • Foreign funds bought 61.8b rupees ($920m) of bonds over past eight sessions, longest buying streak since Feb. 2015
  • Core liquidity turned broadly surplus from July after RBI conducted 800b rupees of OMOs since April policy
  • New RBI governor awaited as Rajan’s term ends early Sept.
  • HSBC (Himanshu Malik, Hong Kong-based rates strategist)
    • Key driver near term likely to be improvement in liquidity conditions
    • Progress of monsoon rainfall may have moderating impact on food prices in coming months
    • Front-end of bond yield curve has scope to go lower given improving liquidity; have been recommending receiving position in 1-year offshore swaps
    • Monetary policy continuity will be important; any change in bias towards more easing may lead to steeper yield curve and higher risk premium in bond yields
    • Maintain forecast for 10-year yield to reach 7% by end-2016
  • Nomura (Vivek Rajpal, Singapore-based senior rates strategist)
    • Bond-bullish trade in India is a real yield compression strategy which should be driven by better liquidity and monetary easing expectations
    • Yields should consolidate at current levels; may see another downleg in rates after consolidation as markets become more confident of sustainable surplus liquidity
    • RBI likely to maintain proactive stance on liquidity and the new governor’s interpretation of real rate framework
  • Standard Chartered (Nagaraj Kulkarni, Singapore-based senior strategist)
    • Bonds rally on peaking CPI inflation, improvement in liquidity and local investors build-up in long positions
    • Rally has legs, as valuations still attractive
    • RBI to support the banking system with sufficient liquidity; redemptions of non-resident deposits coming up may lead RBI to hold more OMOs
    • Belly of curve (7- to 10-year segment) is likely to benefit from both easing liquidity conditions and duration gains; prefer to buy the 7.68% 2023 IGB for target 7%
  • Fullerton India (Arvind Sampath, Mumbai-based head of treasury)
    • Bulk of uncertainty over Fed rate hikes, monsoon, and Brexit is over
    • Rupee is fairly stable and India is yielding positive returns compared to other sovereign bond markets
    • Core inflation looks comfortable in 4.5% zone; sees one more 25 bps rate cut in 2016
    • Expect 10-yr yield to drop to 7.10%-7.15% and then subsequently the 5-year segment rallying towards the repo rate
    • Rates rally has yet to play out in the corporate bonds
  • Societe Generale (Amit Agrawal, Bengaluru-based rates strategist)
    • Expect a further small rally this year with yield likely at 7.25% by end-Dec.
    • Yields should move higher next year due to higher central govt pay, risks of govt bond supply and risks of relaxation of long term inflation target
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Amit Agrawal (Societe Generale SA)
Arvind Sampath (Fullerton India Credit Co Ltd)
Himanshu Malik (HSBC Securities Asia Ltd)
Nagaraj Kulkarni (Standard Chartered PLC)
Vivek Rajpal (Nomura Holdings Inc)

Topics
Weather

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HALISTER1: European I/L Index Set for Largest Extension in Six Years: Citi

European I/L Index Set for Largest Extension in Six Years: Citi

(Bloomberg) -- The largest European inflation-linked extension in six years is driven by concentration of supply in the long-end and OATi17 being dropped out of the index, Citigroup strategist Puja Sawant writes in a client note.
  • European Inflation-Linked Securities Index is projected to extend by 0.41 years at the end of July vs 1-year average extension of 0.04 years
  • Expect significant extension in all three constituents, with the Italian index projected to extend by its largest amount in 4 years; France and Germany to extend the most in a year
  • Month-end changes broadly supportive for linkers
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Puja Sawant (Citigroup Inc)

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HALISTER1: EU CREDIT DAILY: Tone Firm; Mixed Corporate Earnings, Turkey RFD

EU CREDIT DAILY: Tone Firm; Mixed Corporate Earnings, Turkey RFD

(Bloomberg) -- Underlying tone of credit markets remain constructive heading into summer lull, with ECB’s CSPP providing a backstop bid and the accommodative rates environment fueling appetite for yield, Bloomberg strategist Simon Ballard writes.
  • Asian credit mkts have consolidated a little overnight, taking stock after recent market strength
    • Global macro outlook continues to raise questions about path of risk asset fundamentals; but current sentiment may suggest any pullbacks could be shallow and perceived as a buying opportunity
  • Key data points to watch today include U.K. June inflation data, German July ZEW data, Goldman Sachs 2Q earnings
  • Risk Appetite Model sees a steady start to the week post Nice and Turkey
  • CDX IG closed -0.6bps at 76.04 in overnight session; iTraxx Asia Ex Japan IG currently +1.4bps at 119.88
NEWS
  • Corporate News
  • Novartis Says 2016 Profit May Drop on Entresto Costs, Gleevec
  • Volvo Second-Quarter Profit Rises 2.5% Due to Cost Cutting
  • Akzo 2Q Revenue Below, Operating Income, EPS Beats Estimates
  • Ericsson 2Q Sales, Adj. EPS Miss Ests.; Starts Further Cost Cuts
  • Telenor 2Q Ebitda Rises; Cuts 2016 Revenue Growth Guidance
  • Verizon’s Proposal to Acquire Yahoo Isn’t Just About the Cash
  • Honda Audit Finds Takata Engineers Manipulated Air-Bag Data
  • Financial News
  • SBAB Sees Reduced Mortgage Competition After Amortization Rules
  • Arbuthnot 1H Profit Rises on Transactions, Increases Dividend
  • Vietnam’s Eximbank Revises Down 2016 Pretax Profit Target
  • Credit Rating News
  • Turkey Put on Review for Downgrade by Moody’s After Coup Attempt
  • S&PGR Revises Honduras Outlook To Positive; Afrms ’B+/B’ Rtgs
  • S&PGR Upgrades Intercorp Peru To ’BB+’, Outlook Stable
  • Other News
  • Brexit Bargains Scented by Asia’s Rich After Pound’s Plunge
  • Banks With Assets No One Wants Undercut India’s Debt Recast Plan
  • Canada’s First Negative-Yield Covered Bond May Start a Trend
ANALYST VIEWS
  • Santander favored over BBVA ahead of Spanish banks’ 2Q: UBS
  • It is absolutely no coincidence that the ECB’s involvement has resulted in a crunch tighter in corporate bond spreads...squeezing valuations higher as paper becomes more scarce: creditmarketdaily.com
NEW ISSUES
  • CIBC EU1.25b 6Y Covered Bond MS +6
  • JPMorgan EU2b 7.5Y MS +65
  • 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.
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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HALISTER1: INDIA RATINGS: Hinduja, Manappuram, Toyo Engineering Raised

INDIA RATINGS: Hinduja, Manappuram, Toyo Engineering 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
UPGRADES
  • Hinduja Foundries
    • Long-term bank facilities raised to BBB (SO) from BBB- (SO) at Care
    • Cites equity infusion of INR4b in March 2016
  • Kanpur Plastipack
    • LT loan facilities raised to BBB+ from BBB at Crisil
    • Cites higher operating margin
  • Mulpuri Fisheries
    • LT loan facilities raised to B from D at Crisil
    • LT loan facilities of Mulpuri Foods also raised to B from D at Crisil
    • Cites timely servicing of debt by the group
  • Manappuram Finance
    • NCDs raised to AA- from A+ at ICRA
    • Cites improved business risk profile following its shift to shorter tenor loans
  • Rays Power Infra
    • LT bank facilities raised to BBB from BBB- at Care
    • Cites improvement in scale of operations, profitability margins
  • Toyo Engineering
    • Term loan raised to A+ from A at Care
    • Cites robust order book
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
MGFL IN (Manappuram Finance Ltd)
6330 JP (Toyo Engineering Corp)
ENOR IN (Hinduja Foundries Ltd)
KNP IN (Kanpur Plastipack Ltd)
1033487D IN (Mulpuri Foods & Feeds Pvt Ltd)

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HALISTER1: INSIDE ASIA: Oceania Currencies Slide on Rate Cut Speculation

INSIDE ASIA: Oceania Currencies Slide on Rate Cut Speculation

(Bloomberg) -- Both Aussie and Kiwi slide more than 1% on increasing speculations that their central banks may cut policy rates as early as next month after RBA releases minutes from its July meeting and RBNZ unveils property measures. Most Asian currencies fall in line.
  • Australia govt. 10-year bond yield drops 7 bps to 1.926%, while same tenor bond in New Zealand slides 6 bps to 2.286%
  • Kiwi slides over 1% after RBNZ said it will tighten rules nationwide for property investors in Sept., earlier than that suggested two weeks ago by RBNZ’s Spencer, who said such curbs might come by year-end
    • OIS probability of a rate cut at next RBNZ meeting rises to 78%; was at 72% yesterday
    • NZD fell on RBNZ’s earlier than expected move; growing bias for RBNZ to cut rate August meeting by 25 bps, says Christopher Wong, senior FX analyst at Maybank
    • Tight timeline proposed reinforces likelihood of RBNZ cutting in August especially following softer N.Z. 2Q inflation, said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia
    • RBNZ Bulletin says macroprudential actions may be justified
  • Aussie extends decline after RBA minutes fuels expectation the central bank may cut policy rate next month
    • RBA looks to inflation, labor, housing data to assess outlook, it said in minutes of July meeting
    • Minutes also says inflation expected to remain quite low for some time given very subdued growth in labor costs and very low cost pressures elsewhere in the world
    • AUD/USD to decline toward 72 at end-Sept if there is an RBA rate cut next month, Sue Trinh, head of Asia FX strategy at RBC Capital Markets
    • Further information that RBA awaits will clearly be dominated by next week’s inflation data, says Westpac’s global head of FX and commodity strategy, Robert Rennie
    • AUD/USD may fall to catch up with narrowing 10-yr Australia and U.S. bond yield spread: Charts
  • Peso, ringgit, won as well as Singapore and Taiwan dollars decline, on cue from AUD and NZD
    • Foreign investment in Indonesia and Thailand stocks may fall after heavy buying YTD led to outperformance, CS note says
    • Weakening Asian currencies could be also driven by geopolitical concerns tied to North Korea missile test, says Moh Siong Sim, FX strategist at Bank of Singapore
  • Yuan recovers from beyond 6.7000 after PBOC sets reference rate at 6.6971, stronger than previous day
    • If PBOC shows little intention to defend yuan at 6.7 vs USD, it could fall to 6.8 in weeks: Commerzbank
    • CNY will continue depreciating this year, but at a slower pace, according to a Bloomberg survey of analysts and traders;
    • Yuan has demonstrated a clear trend of depreciation, but the downturn is very gradual and controlled to suppress aggressive speculation: Credit Suisse
  • Yen gains after declining 1.21% yesterday
    • Meiji Yasuda Life Insurance may buy U.S. bonds without currency hedges should the yen rise near 100 per dollar, the strong end of its forecast range for the fiscal year
    • Daiwa SB Investments says it is switching some of its yen cash holdings into Indonesian rupiah and Brazilian real-denominated bonds issued by AAA-rated organizations
  • Won drops for a second session
    • BOK Governor Lee says for small open economies, monetary policy should pay attention to financial stability, as excessive easing could trigger capital outflows or lead to currency depreciation
    • June PPI -2.7% y/y, smallest decline since Dec. 2014, vs revised -3.0% for May
    • China’s 2Q gross GDP and June data sustained risk-on sentiment globally, which favors KRW among Asia FX: ING
    • Limited room to ease space and elevated current-account surplus should continue to support won, CBA wrote in note yday
  • Ringgit falls for second day as WTI crude oil drops and dollar index gains
    • Morgan Stanley suggests selling SGD/MYR 1-mo. NDF with a target of 2.83 and stop at 2.98 because MYR valuations are cheap after significant adjustment last year, according to note yday
  • Rupiah continues its consolidation just above psychological 13,000 level
    • BI is likely to leave its key policy rates unchanged this week though watch its tone, as risks for further rate cuts remain, DBS wrote in a client note dated July 18
  • Peso drops, heading for its first fall in five days ahead of balance of payments data
    • June balance of payments data due today; no est., last +$241m
    • Philippine economy well-placed to grow strongly in short term as consumption is supported by rapid wage growth and healthy household finances, Capital Economics writes in note received today
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Christopher Wong (Malayan Banking Bhd)
Elias Haddad (Commonwealth Bank of Australia)
Moh Sim (ING Groep NV)
Robert Rennie (Westpac Banking Corp)
Sue Trinh (Royal Bank of Canada)

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