Halister News

(Bloomberg) -- Long-dated gilts offer “better value” than the front end as BOE may announce a credit easing program at the start of 2017, Myles Bradshaw, global head of aggregate fixed income who manages $7b of assets at Amundi, says in interview.

• London-based Bradshaw has a small underweight position on sterling, expecting further downside pressure on the currency from here given expectations of more easing, lack of clarity on Brexit negotiations
• Appointment of May as PM is positive as she is the more experienced candidate and has been chosen faster than expected
• Investors will want May to lay out her key Brexit- negotiation objectives but it will probably be difficult for her to do this quickly, particularly as she is a consensus candidate rather than an electoral winner
• BOE will cut rates by a total 50 bps, probably in two stages, at July and August meetings; chances of BOE rates to go negative are low as experiences in Europe, Japan have shown it may have unintended consequences
• Doesn’t expect ECB to react to any Brexit fallout for now as the event’s epicenter remains U.K.; European central bank is likely to play a “waiting game”
• Moving away from capital key will probably happen in future but ECB has to prepare the ground for this as it would be a politically controversial decision; it may opt later this year for some technical tweaks to QE
• Peripheral bonds remain more attractive than bunds; political risks in Italy heading into the Constitutional referendum in October may spur volatility
• Favors U.S. credit market as the economy is growing and Fed won’t probably hike interest rates anytime soon
• NOTE: BOE to meet this week; strategists recommend selling the pound into the meeting

(Bloomberg) -- With Theresa May set to be PM by tomorrow, there’s more clarity to U.K. politics; that could underpin GBP risk appetite and trigger some re-compression of the corporate credit quality curve. But the myriad questions around Brexit execution may still weigh on spreads, Bloomberg strategist Simon Ballard writes.

• GBP IG/HY spread ~400bps, widest since June 2013, as cautious investor sentiment has driven up-in-quality, defensive haven strategies
  • EUR IG/HY spread now ~330bps (-160bps YTD, -100bps since ECB announced CSPP on March 10)
• IMF shows concern about Italian banks’ balance sheets, noting “very high” NPLs; said “concerns related to the bail-in of retail investors should be dealt with appropriately”
• Risk Appetite Model shows recent increase in post-Brexit result, but fading spread dispersion as risk rallies
• CDX IG closed flat at 77.31 in overnight session; iTraxx Asia Ex Japan IG currently -4.6bps at 129.23

NEWS

• Corporate News
• Qatar Airways Quadruples Profit on Lower Fuel Costs
• Boeing, Airbus Duel for $12 Billion Deal With India SpiceJet
• Tencent-Backed Electric Carmaker Seeks Investors for 2020 Debut
• PSA Sees ‘Slower’ 2H European Car Market Due to Brexit
• South Africa Exempts Telkom From Parts of Public Finance Act
• U.S. Natural Gas Futures in New York Rebound From 2-Week Low
• EDF Enters China Wind Energy Mkt Buying 80% Stake in UPC AWM
• Ahold, Delhaize Still Expect Merger To Complete By End of July

• Financial News
• DNB Profit Drops as Loan Losses Rise at Norway’s Largest Bank
• UBS’s Orcel Signals Halt to Years of Investment Bank Cuts
• Tryg to Pay Semi-Annual Dividend of DKK2.60

• Credit Rating News
• Moody’s Sees Brexit Negligible Credit Impact on GCC Sovereigns
• Fitch Sees Record Credit Downgrades

• Other News
• For Wall Street Bond Strategists, There’s Wrong and Less Wrong
• U.K. LFL June Retail Sales Fall 0.5% Y/y, BRC Says
• Pokemon Go Was an April Fool’s Joke Before It Became a Giant Hit

ANALYST VIEWS

• Distressed exchanges have contributed significantly to the rise in defaults this year, including a significant number of serial defaults that have remained in the default rate far longer than the normal twelve-month period: CreditSights
• Analyst estimates point to a modest contraction in 2Q earnings, with energy, the big-5 banks, and Apple doing the most damage. However, the real story is the lack of a powerful underlying trend even after these headwinds are removed: RBC

NEW ISSUES

• Aroundtown Property EU500m 8Y MS +205
• Deutsche PBB GBP100m 1.875% 12/2019 Cov Tap at UKT +92
• PepsiCo EU750m 12Y MS +47
• Salini Impregilo EU171.7m 3.75% 6/2021 Tap at 102.25
• 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) -- Netherlands to sell 10Y 0.5% 07/2026 for EU1.5-2.5b at 11am CET. Auction not expected to swap. Analysts see value given the outlook for the ECB; seen as attractive vs semi-core.

• ING (Benjamin Schroeder)
  • DSLs have already recovered from recent cheapening vs core peers; 10Y spread vs bunds has tightened to ~16bps from ~19bps late last week, now at lower end of year-to- date range
  • Scarcity growing problem in DSLs, ~50% of 2-31Y bonds trade below depo rate
  • 10Y DSLs still look attractive on the curve, as seen in 5s10s ASW box, and considering where bund curve has traded
  • Great unknown is when ECB will decide to change modalities of PSPP program; any relief move would be more pronounced in bunds

• Rabobank (Richard McGuire)
  • Global haven demand post Brexit has bull-flattened curve, ongoing fallout tilts odds toward further policy support from ECB
  • DSLs now trade below -40bps out to the 7Y; ECB will need to skew QE efforts toward longer-dated DSLs; supports flattening theme, highlights this bond’s appeal in curve extension trades
  • In RV, issue offers value vs RAGBs and OATs
  • Auction not expected to swap as DSTA strives to achieve average maturity target for outstanding portfolio of 5.5Y at the end of 2016

• ABN Amro (Kim Liu)
  • Dutch issue will compete for investor demand with other auctions in 10y sector this week
  • Following this sale, year-to-date funding will increase to over 60% of target
  • Since launch, 10y bond has outperformed its German equivalent, but looks attractive vs comparable semi-core bonds and in ASW