Halister News

(Bloomberg) -- Labor-market data is expected to confirm that uncertainty ahead of the June referendum on EU membership is weighing on job creation, while data on wages will show diverging trends, analysts say.

• March 3-mo. ILO unemployment rate estimated to stay at 5.1%; jobless claims change forecast at 5k
• U.K. weekly earnings 3-mo est. 1.7% vs prior 1.8% and 2.1% in Jan
• U.K. weekly earnings 3-mo. average ex-bonus est. 2.3% y/y vs 2.2%
• Data will probably show muted job creation in the first three months of the year, Bloomberg Intelligence’s Dan Hanson writes
• Probably won’t surprise the BOE, which forecast a slowing economy, as uncertainty around the June 23 referendum weighs on activity and hiring decisions: Hanson
• Scotia economist Alan Clarke says data may show the first drop in employment since last May; slowdown in hiring echoes a similar move ahead of the 2015 general election but points out it started before the date of the referendum was known, suggesting the drop in hiring may reflect other factors too
• Pantheon economist Samuel Tombs says the slowdown in employment growth probably won’t prevent an acceleration in wages amid labor shortages
• Expects wage growth to rise to an “MPC-scaring” 3-3/4% by year-end: Tombs
• While GBP has been resilient, probably as a function of very short positioning and signs that Brexit support may be waning, cable may drop back toward the 1.4330 area on weak data, but it will be hard going, analysts at ING say
• Adam Cole, analyst at RBC, points out that weaker expected inflation data yday had little impact, suggesting GBP price action is now dominated by the evolution of U.K. exit risk rather than economics
• NOTE: GBP OIS fixing for August rate meeting now expected to be ~0.39%, which is about 7bps-8bps lower than recent spot Sonia fixings, Bloomberg strategist Richard Jones writes

(Bloomberg) -- OATs remain cheap vs bunds and should keep attracting strong domestic and Japanese interest in a yield-starved world, Societe Generale strategist Jamal Meliani writes in client note.

• Buy June OAT future at 158.76, targeting 160.80 (33bp target), average at 158.10, stop below 157.50; carry + roll- down = 1.3bp/mo.
• French fundamentals are starting to improve, thanks to the timid reforms enacted over the past few years
• OATs have been the main vehicle for risk-averse and yield- starved investors looking to diversify in the long-end in the euro area but shunning low-yielding bunds
• Risk: rating downgrade, but highly unlikely

(Bloomberg) -- Rupee falls for a fifth day, headed for its longest losing streak this year after two regional Fed presidents said at least two rate hikes by the U.S. central bank may be warranted this year.

• ’’The rupee has broadly moved in line with the global dollar strength and recent rebound in oil prices,’’ says Ashish Vaidya, Mumbai-based head of trading at DBS, in interview
  • INR may drop to 67-67.50 per USD levels near term as the market goes long USD on approach of June FOMC
• BlackRock likes India bonds where softer inflation and fiscal consolidation pave way for accommodative monetary policy
• Rupee down 0.1% to 66.9075 per dollar, fell to 66.97, weakest since March 16
• Foreign investors sold net $14.4m in local equities on May 16: CDSL; they sold net $65.8m in local debt on May 16
• Public banks were biggest buyers of govt debt at 12.9b rupees on May 17; primary dealers were biggest sellers at 11.2b rupees: CCIL data
• Yield on 7.59% govt bond due Jan. 2026 rises 1 bp to 7.47%

(Bloomberg) -- Hermes says in statement on Wednesday that it’s “concerned that Deutsche Bank continues to experience conduct incidents” such as alleged money laundering in Russia.

• Commends supervisory board decision to scrap bonuses to members of management board in 2015
  • “Concerned about significant increases in base salaries in recent years”
• Will vote against discharge of mgmt board members appointed before July 1, 2015
  • “With this vote, we formally express our strong concerns about a range of issues that happened during their tenure”
• NOTE: Link

(Bloomberg) -- U.K. to sell 4.25% 03/2036 for GB1.5b at 11:30am CET. Analysts highlight the lack of outright concession in the bond, though see value of the sector on 10s20s30s fly.

• RBS (Simon Peck)
  • Little outright concession given recent rally, sector has cheapened ~7bps on 10s20s30s fly since start of May, starting to look attractive on this basis
  • 20Y area lacks natural buyers vs others; supply is relatively heavy in the sector this quarter, backdrop potentially more challenging than usual
  • In event of rising Brexit risk, 20Y may outperform on anticipation of further QE; sector has tended to outperform in QE buybacks

• Citi (Saumesh Dutta, Jamie Searle)
  • 20Y yields have rallied strongly over past fortnight, now trading mid-range vs recent history
  • Bond has cheapened slightly vs peers over past 2-months; much better RV found in 10s20s30s fly, which has cheapened sharply over past week
  • PCA analysis shows relative cheapness of 15Y/20Y curve; 03/2036 is second-cheapest bond in the sector
  • Gilts have outperformed bunds, USTs recently, though 20Y sector has been lagging, presents opportunity

• Santander (Adam Dent)
  • Gilt yields low, range-bound, unlikely to break out soon; 20Y looks fair on the wider curve, given the steepening seen in 10s30s
  • Bond at the cheap end of tight range vs peers; long-end gilt spreads have all been drifting tighter, though this may slow

• SocGen (Marc-Henri Thoumin)
  • Relatively light auction, DV01 of just £2.88m; 20Y point has underperformed, sits close to cheapest levels for the year, some rebound is likely once auction has passed

--SIMONE MEIER

(Bloomberg) -- Germany to sell 0.5% 02/2026 for EU4b at 11:30am CET, with some analysts highlighting attractiveness vs bonds in 12Y-15Y sector.

• ING (Martin van Vliet)
  • Absolute valuations “stretched”, 10Y benchmark looks attractive in Z-spread vs 12Y part of the German curve
  • Traded 40bps special in repo yesterday, suggests auction will get done at reasonable levels

• Mizuho (Antoine Bouvet)
  • 10Y yields remain close to the bottom of recent range, continue to expect more gains given weak inflation, growth dynamics, bond scarcity
  • Bond is fairly priced in micro-RV; roll to 08/2025s ~7.1bps is near top of its range, which may seem attractive, but tends to cheapen into end of auction cycle, offers poor risk-reward

• JPMorgan (Gianluca Salford)
  • 10Y benchmark has been cheapening vs off-the-run bund 08/2025, old-30Y 07/27; 10Y sector is ~2bps cheap 5s10s15s fly

• Commerzbank (Michael Leister)
  • Auction should fail to produce spectacular metrics; bund swap spreads at the upper end of range, 10Y should catch up with richer bonds as it rolls down the curve in coming months
  • Cheapness seen in swap spread is even more pronounced vs longer-dated bunds, 07/2027 to 07/2034 close to 50bps through swaps

(Bloomberg) -- JGBs fall on weak results of BOJ’s purchases of short-dated notes today and on price concession before 20-year auction tomorrow, says Shuichi Ohsaki, chief Japan rates strategist at Bank of America Merrill Lynch.

• High bid-to-cover ratio at BOJ’s offer to buy 1- to 3-year bonds had a negative impact, Tokyo-based Ohsaki says in an interview; NOTE: This ratio was at 5.30, highest level for same tenors since Aug. 2014, indicating investors are more willing to offload their bond holdings
• Tomorrow’s 20-year JGB sale could go smoothly on possible buying of this debt to sell them at BOJ’s bond purchases: Ohsaki; expects 20-year JGB yield of around 0.30% to be attractive; with 20-year part of curve relatively cheap compared with 30- and 40-year sectors, sees possible interest to put on steepeners in super-long end
• 2-year yield up 1 bp at -0.245%, 5-year yield up 0.5 bp to -0.220%, 10-year yield up 0.5 bp to -0.105%, 20-year yield up 1.5 bps to 0.275%

(Bloomberg) -- Asian credit markets lower overnight as U.S. rates outlook continues to cloud risk-asset sentiment; EUR corporate-bond space seems set to be pinned in consolidation mode with a cautious bias again today, Bloomberg strategist Simon Ballard writes.

• Demand/supply dynamics ahead of the ECB CSPP remain robust with cash spreads seemingly underpinned, although price gyrations in the more liquid iTraxx indexes continue to highlight susceptibility to macro and event risk headlines
  • Brexit uncertainty appears to be damping GBP credit; GBP HY has consistently underperformed EUR HY since mid- February as referendum polemic intensified and prospect of ECB bond-buying added fillip to the euro credit mkt
• In wake of firm U.S. April CPI, industrial production and home building, focus today will likely be on FOMC April minutes as market weighs June Fed-hike risk
• Risk Appetite model shows modest consolidation in vol and spread dispersion over past month; still in ‘risk on’ territory

• CDX IG closed +0.6bps at 82.42 in overnight session; iTraxx Asia Ex Japan IG currently -0.3bps at 142.91

NEWS

• Corporate News
• SABMiller FY Pretax Profit Misses Estimate
• GlaxoSmithKline Consumer Falls After Profit Misses Estimates
• Burberry Says Has 3-Year Plan to Deliver GBP100m Savings a Year
• Sonova FY Ebita Misses Ests., Div. In Line With BDVD Forecast
• Marston’s 1H Pretax Rises 11.8%, Says FY Plans On Track
• Atrium 1Q Pretax Profit More Than Doubles to EU26.5m vs EU11.1m

• Financial News
• Delta Lloyd 1Q Solvency 2 Ratio Drops; GI Premiums Written Rise
• Dexia Posts EU55m Loss; CET1 Ratio Drops to 14.6% on AFS Reserve
• Credit Suisse Targets Rich Thais to Help Reach Wealth Goal
• Goldman Said to Consider Aussie Asset Management Unit Sale

• Credit Rating News
• S&PGR Rates Deutsche Securities ’BBB+/A-2’; Outlook Stable
• S&PGR: Rated Chinese SOEs’ Liquidity Should Stay Adequate

• Other News
• Deutsche Bank Faces Fresh Investor Ire a Year After Shakeup
• As Brexit, Trump Multiply Global Risks, Gold Seen at $1,400
• Fifty Years of History Is Worth Braving for European Bond Buyers

ANALYST VIEWS

• Equities look like they have had their day - for the moment. That is good for corporate bonds... offering an incremental “safe” income, while yielding more than govies/bank deposits: creditmarketdaily.com
• April FOMC Minutes May Jolt Mkts to Price in Fed Hike: Citigroup

NEW ISSUES

• Argenta Spaarbank EU500m 10NC5 Tier 2 MS +395
• Barry Callebaut Services EU450m 8Y 2.50%
• BNG GBP250m 5Y UKT +45
• Caruna Networks EU500m 7Y MS +130
• Citigroup EU1b 5Y FRN 3mE +83
• Leaseplan Corp EU750m 5Y MS +107
• Nasdaq EU600m 7Y MS +162
• PACCAR Financial Europe EU300m 3Y MS +30
• SocGen EU1b 7Y MS +65
• Zurich Insurance EU750m 30.4NC10.4 Subord MS +295
• Afreximbank $750m 5Y Reg S MS +300
• 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.