Halister News

(Bloomberg) -- France taps OAT 2.25% May 2024, 0.5% May 2026 and 3.25% May 2045 for up to EU9b at 10:50 CET. Spain taps SPGB 0.75% July 2021, 1.95% April 2026 and 2.9% Oct. 2046 at 10:30 CET. Analysts see value in OATs and SPGBs in auction versus their respective curves.

• Citigroup (Puja Sawant)
  • OAT May 2026 looks cheap on Nov24-May26-Oct27 fly and OAT May 2045 has cheapened on May36-May45-Apr55 fly post announcement
  • Cross market, 10Y OATs look cheap vs RAGBs while 30Y OATs look to offer value vs OLOs
  • Also favor 10s30s OAT flatteners vs bunds given the persistent yield grab and attractive entry level
  • On the other hand, see limited value in OAT May 2024
  • SPGB July 2021 has cheapened on the microfly (Apr20- Jul21-Jan23)
  • April 2026 looks attractive on both the Apr24-Apr26- Oct28 microfly and the 5s10s15s curve
  • 20s30s spread has widened for Spain, in contrast to Italy

• Commerzbank (Christoph Rieger)
  • Regarding French auction, identify value in the on-the- run OAT May 2026 which has underperformed significantly vs the curve, with the 5s10s15s fly decoupling significantly from the bullish outright dynamics
  • Expect this to normalize and hence the 10Y sector to outperform once the auction is cleared
  • In Spain, the underperformance of 10Y SPGBs vs the curve has been even more pronounced
  • Yet with risk-off sentiment returning, investors might well require further concessions before adding duration again

• BofAML (Erjon Satko)
  • First tap of France May 2024 and May 2045 since Dec. 2015 and Jan. 2016 respectively
  • Supportive of BTPS over SPGBs in the 5Y sector
  • Expect lower trend growth in Spain; combination of high growth, high policy uncertainty and high fiscal slippage make for an unstable equilibrium

(Bloomberg) -- USD/KRW non-deliverable forwards account for 33.7% of total volume today, according to trades reported to DTCC; USD/MYR second-most active at 15.5%, USD/INR third at 15.2%.

• Notional amounts traded include:
  • $250m+ of USD/KRW at 1,190.46; matures July 1
• Total volume was $11.3b as of 2:58pm HKT; global total yesterday was $70.4b, with USD/KRW accounting for 21.0%

(Bloomberg) -- Credit Suisse recommends investors start positioning for rate cuts in Russia, strategist Nimrod Mevorach says in research note.

• Bank of Russia will cut key rate either at next meeting on June 10 or at July 29 meeting: Credit Suisse
• Recommends real-money investors hold marketweight positions in OFZ bonds
• Recommends switch from Jan. 2028 bonds into Feb. 2019 bonds; target yield differential of +10bps from current -51bps, stop-loss at -70bps
• “Multimonth flattening trend of the OFZ curve” is excessive as macro conditions prompt rate cuts

(Bloomberg) -- Asian mkts have maintained a weak bias overnight suggesting the same for EUR credit mkts at the open this morning. Focus will likely be firmly on the ECB and anticipated release of details of CSPP, Bloomberg strategist Simon Ballard writes.

• Details of scope/depth of CSPP should underscore corp spread tightening seen since March; failure to confirm details would disappoint and likely be punished by risk assets
  • Cash corp bonds underpinned; volatility and risk sentiment/ price gyrations mostly reserved for synthetic indexes
• Brexit polemic set to intensify over coming 48hrs as first televised Q&A session with PM Cameron takes place this evening; may continue to pressure GBP credit spreads vs EUR/USD peers
• Direction of Risk Appetite Model through June may hang on ECB today and details of corporate bond buying program

• CDX IG closed little changed (+0.02bps) at 77.33 in overnight session; iTraxx Asia Ex Japan IG currently +0.8bps at 142.81

NEWS

• Corporate News
• Johnson Matthey FY Adj. Pretax Beats, Sees FY17 Ahead of FY16
• Cathay Interested in Bigger Airbus A350 for Miami Non-Stop
• EBRD Considers $150m 8-Year Loan to Turkey’s Tupras
• Peabody Australia coal company loses nearly $3b in 2015, notes risk from parent’s bankruptcy
• RPC Group FY Adj. Pretax Rises, New Year Has Started Well

• Financial News
• U.K. Banking Expansion Hits Brexit Hurdle for Handelsbanken
• Banco Popolare Said to Eye Rights Offer Discount of About 30%
• Deutsche Bank Sees Capital Hit as Basel Rules Add to Legal Woes

• Credit Rating News
• Global Funds See More Pain for Indian Banks After S&P Downgrade
• S&P Raises Japan’s Growth Forecast on Delayed Tax Hike

• Other News
• European Banks Feel the Pinch From Draghi’s Negative Rates
• Japanese Sell Overseas Debt as Fed Moves Toward Rate Increase
• Greek Euro Exit Would Be Catastrophic, Valls Tells Kathimerini

ANALYST VIEWS

• Weakness and/or volatility in other asset classes is increasingly having no impact on the corporate bond market in Europe. We’re not immune to event risk, but it would need to be of the “systemic” kind before we see any meaningful weakness: creditmarketdaily.com

NEW ISSUES

• AIG EU750m 7Y MS +140
• APRR EU700m Long 9Y MS +73
• BP di Milano EU750m 7Y Covered MS +46
• Council of Europe EU1b 10Y MS -10
• Daa Finance EU400m 12Y MS +85
• Deutsche Bank EU500m 10Y Covered MS -1
• Deutsche Kreditbank EU500m 5Y Green Bond MS +67
• Dexia Kommunalbank Deutschland EU500m 2021 Covered MS +6
• EAA EU1.5b 3Y MS -7
• Europcar EU125m 5.75% 6/2022 Notes Tap 104.5
• PKN Orlen EU750m 7Y MS +250
• SpareBank 1 SMN EU500m 5Y MS +85
• SR-Boligkreditt EU750m Long 5Y Cov MS +12
• 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) -- MYR gave up more than half its 1Q gains in May and could be headed back to 4.40 vs dollar even without last yr’s combination of political instability and lower oil, Deutsche Bank analysts write in note today.

• The best of risk premium compression and MYR inflows is likely done and foreign underweights already covered
• Ringgit has very little buffer against stress; beta to global variables leaves it vulnerable
• Five main reasons for negative MYR view:
  • Malaysia’s shrinking current account cover
  • Capital flow balance unlikely to be sustained
  • MYR has strong correlation with rate differentials
  • MYR’s beta to market variables from USD, oil, CNY fixings, and credit risk point to continued caution
  • Official defenses against currency weakness remain thin
• USD/MYR up 0.5% to 4.1650; last touched 4.40 in Jan.

(Bloomberg) -- If U.K. bookmakers are correct the majority of Britons will vote to stay in the EU. Yet, any relief rally for the pound and equities could be brief. Prime Minister David Cameron and Chancellor George Osborne are leading a campaign which is splitting the Conservative party and will almost certainly trigger a leadership challenge.

• A party coup similar to one that ousted Margaret Thatcher could hit U.K. assets hard
• In the summer of 1990, when Thatcher’s leadership was under attack, U.K. stocks slid 14% from August until her resignation in November
• Sterling went through the same period little changed, but it was underpinned by 15% interest rates, compared to 0.5% today
• Looking at the long-term performance of the pound, when it dives, it dives deep; click here for a chart of GBP/USD going back to 1985 when it dropped to a record low of 1.0520
• Cameron has said he will not lead Tories into the next general election. But his prospects of making a graceful exit and passing the reins to an anointed successor are fading fast
• Before the EU vote was called, Osborne and Boris Johnson were the two leading candidates to succeed Cameron. But both men may have lost support with their tactics during this campaign and could both be victims of any Tory bloodletting
• Should British voters defy expectations and choose to leave the EU, it will be time to dig out those unused 1985 invitations to the sterling/dollar parity party.
• NOTE: Mark Cranfield is an FX strategist who writes for First Word. The observations he makes are his own and are not intended as investment advice.

(Bloomberg) -- Japanese yen extends rally after comments from BOJ member Sato damp prospects of further easing. Korean won also gain on overnight decline in USD and stronger than est. 1Q GDP. Malaysia’s ringgit and Indonesia’s rupiah drop.

• Yen gains for third day against dollar
  • BOJ should make asset purchase operation more flexible and explore flexible approaches to monetary base target, BOJ member Sato said; negative interest rate policy has effect of monetary tightening, rather than an effect of easing, he added
  • Sato’s remarks and delayed sales-tax hike weaken odds of BOJ easing, Daiwa says
  • USD/JPY is trading heavy and placing downward pressure on rest of USD/Asia, Sue Trinh, Asia FX strategist at RBC says in interview
  • USD/JPY had a knee-jerk reaction below 109 coinciding with Sato’s comments; however, his comments revealed nothing new, and USD/JPY has recovered losses
  • S&P raises Japan’s growth forecast in 2017 to 1.0% from 0.4% on delayed tax hike which is positive for near-term expenditure
  • PM Abe yesterday promised bold economic steps in the autumn; stocks drop as stimulus plans lack details
• PBOC raises yuan fixing by most since May 12, in line with broad USD weakness; move had limited impact on onshore yuan
  • Onshore yuan’s inability to track PBOC’s stronger fixing rate today may be due to authorities’ intention to release some CNY depreciation pressure ahead of FOMC meeting in June: Natixis
• Aussie falls first day in four days after retail sales missed estimates and ahead of large options expiry near the spot
  • April retail sales rose 0.2% m/m, below est. of 0.3% gain and vs March’s +0.4%
  • April trade balance at -A$1.58b , smallest shortfall since Feb. 2015, vs March’s revised -A$1.97b vs est. - A$2.10b
  • Momentum and model accounts have sold AUD/JPY on the break of 79.00, Sato comments attracting hedge funds to establish long yen positions, trader says
  • Ex-Asia macro funds bought large amounts of EUR/AUD this morning in Hong Kong and Singapore, according to Asia- based FX traders
• Won gains after South Korea’s final 1Q GDP came in at +0.5% q/q vs +0.4% initial est. and +0.7% previous quarter
• Rupiah falls to lowest in two weeks as S&P Global Ratings keeps Indonesia at BB+ with positive outlook because of weak fiscal performance
• Indonesia gets $400m World Bank loan for fiscal reform, Investor Daily reports
• Peso gains for second day
  • Philippines’ 2016 economic growth may approach 7%, incoming Economic Planning Secretary Pernia says
  • Incoming budget chief comfortable with deficit at 3% of GDP

(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

• PVR Spinning
  • Long-term loan facilities cut to BB- from BB+ at Crisil
  • Cites steep deterioration in liquidity due to low cash accrual

• SunTec Infrastructure
  • LT loan facilities cut to BBB from A- at Crisil
  • Cites delay in start of construction of technology park in Kerala

• Western Precicast
  • LT loan facilities cut to BB+ from BBB- at Crisil
  • Expects group’s liquidity to deteriorate as large incremental working capital requirement seen

UPGRADES

• GNA Axles
  • LT bank facilities raised to A- from BBB+ at Care
  • Cites improvement in overall financial risk profile

• OPG Energy
  • Term loans raised to A- from BBB+ at ICRA
  • Cites healthy margins

• OPGS Power Gujarat
  • Term loans raised to BBB- from BB+ at ICRA
  • Cites commissioning of 2nd unit of co’s power project in Feb.

• Renew Wind Energy
  • LT fund based limits raised to BBB from BBB- at ICRA
  • Cites satisfactory track record