Halister News

(Bloomberg) -- Near-term positioning views on USTs take into account potential for rising expectations for Fed rate hikes to hurt front end, with Deutsche Bank, JPMorgan and SocGen recommending short or synthetic short positions in 2Y sector; Citi expects rates to fall as Fed view shifts, while Nomura sees Fed balance sheet policy leading to term premium increase.

• Deutsche Bank (strategists led by Francis Yared and Stuart Sparks, Aug. 18 note)
  • Strategic view “remains biased towards higher yields,” though “the more fragile inflation outlook and political environment” warrants keeping low risk for now
  • Still, odds of a December hike are “slightly better than even” because Fed “does take financial conditions into account”
  • UST 2Y “is trading at extremely rich levels,” with “barely any pickup over IOER”; recommend short with outright target of 1.45%, or selling 2y spread, target 20bp
    • Catalysts for cheapening could include increase in auction size starting in November or approach of debt ceiling deadline
• JPMorgan (strategists led by Jay Barry, Aug. 18 note)
  • UST yields are unlikely to be dislodged from “range-bound, low- volatility environment” in coming weeks
  • Jackson Hole symposium will apparently focus on “structural issues facing the global economy, rather than monetary policy,” and data calendar is light
  • Treasury appears able to cover its obligations until Oct. 13, so it’s unlikely that “traditional debt ceiling dynamics will make their imprint on markets and risk appetite” until after Labor Day
  • Still, with 2Y yield close to IOER, “we remain bearish on duration at the front end and recommend maintaining shorts in the 2-year sector”
• SocGen (strategists led by Subadra Rajappa, Aug. 17 note)
  • Performance of stocks and credit spreads “should support another rate hike later this year,” so 2Y yield only 6bp higher than top of fed funds target range is “too rich,” despite political uncertainties and geopolitical risks
  • However, outright shorts in 2Y sector “may not be the most efficient expression”; prefer front-end forward steepeners like 2y1y vs 1y1y or Reds/Greens steepeners
• Citi (Strategists led by Jabaz Mathai, Aug. 18 note)
  • Rates have scope to fall further, “driven by a continued recalibration of Fed expectations”
  • Express long duration via options, given low level of implied vols; buy receiver spread on 10y with strikes at 2.20% and 2%
  • With reserve managers and banks moderating their purchases of USTs, future demand will depend more on private investors and asset managers
• TD (Strategists led by Priya Misra, Aug. 18 note)
  • 3m10y receivers trading over payers suggests that investors “remain nervous about a further decline in rates”
  • However, rates “have been somewhat less sensitive to declines in stocks,” possibly because dealers are long gamma and stocks remain near record highs
  • A sharp drop in stocks could flatten 5s30s and weigh on TIPS breakevens
  • Draghi and Yellen at Jackson Hole are unlikely to offer much guidance of future tightening plans because of intense scrutiny on them
• Nomura (Strategists led by George Goncalves, Aug. 17 note)
  • Fed unwinding balance-sheet investments is likely to increase term premium at long end of UST curve by 35bp-50bp and widen MBS by 15bp-20bp; MORE
• BofA (Shyam Rajan and Carol Zhang, Aug. 18 note)
  • Positioning by active funds is as neutral as it has been “in a long time”
  • Buying of USTs by foreign official investors has been strongest since 2012, largely owing to the weakness in the dollar
  • However, foreigners “are largely using Treasury auctions to satisfy their duration needs as opposed to transacting in the secondary market”

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang

(Bloomberg) -- Treasury futures (TY1) technical levels in focus.

• Daily Trend Bias: Bullish
• Comment: Overall focus stays higher; bulls still need to clear the important 126-28/126-29 which sets the platform for YTD high test at 127-08
  • Resistance: 127-01/127-02; 127-08
  • Support: 126-18/126-17; 126-11; 126-09+
• NOTE: Roll-adjusted by difference in GFUT
• NOTE: Sejul Gokal is a FICC technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

To contact the reporter on this story: Sejul Gokal in London at sgokal1@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma

(Bloomberg) -- Positioning will likely drive the current roll cycle, as asset managers remain “significantly net long in multiple contracts,” Citi strategist Jason Williams said in Aug. 18 note. 

• Market’s “depressed Fed expectations” may support a bullish bias for the front-end, though risks for a continued cheapening of GC against OIS could support a bearish bias for the cycle
• Bullish TUU7/TUZ7; longs should roll late, shorts roll early
  • Buy-side traders other than leveraged funds and asset managers have recently increased net shorts, which historically has caused the TU roll to richen; short speculative positions have increased to 27% of open interest from 18%
  • Risk to positioning view is recent increase in asset manager longs since the last cycle, which tend to cheapen the roll
• Bearish FVU7/FVZ7; longs should roll early, shorts roll late
  • Asset managers’ net long position accounts for ~29% of open interest, which “will likely continue to have an outsized impact on the roll,” similar to last cycle
  • Roll may see further richening pressure if UST belly rallies, “likely flattening the spread” between the front and back CTDs
• Neutral TYU7/TYZ7
  • Positioning unlikely to be a primary driver as long asset manager base is ~2% of open interest, which is lower than previous two cycles
  • Cheapest-to-delivery slope has seen “significant steepening pressure,” ~1bp during past three weeks, which may encourage longs to wait for a better entry level to roll forward
• Bullish UXYU7/UXYZ7; longs should wait to roll, shorts should roll earlier
  • Asset managers net short the contract, 16% of open interest, which tends to drive the UXY roll
• Neutral USU7/USZ7
  • CTD security will likely remain 4.5% Feb-36s for both front- and back-month contracts
  • Risks for longs waiting to roll may be a sharp selloff in rates or a discussion of new 20Y issuance, which could put pressure on the front CTD
• Bearish WNU7/WNZ7; longs should roll early, shorts should roll later
  • Positioning will be main driver since the net long asset manager position remains near multi-year highs; longs may be looking to roll earlier due to the large AM positions

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang

(Bloomberg) -- Co. lowered FY18 volume guidance; expects better performance in 2H FY18, Mrinalini Chetty and Siddhartha Khemka, analysts with Centrum Wealth write in note dated August 18.

• Lowering of guidance within one quarter, weak results don’t provide comfort
• Improvement in demand to aid capacity utilization, which is key growth driver
• Risks: further financial deterioration, currency, geographic concentration, upfront payments could narrow margins
• Downgrades stock to neutral
• Stock -5.4%; 9 buys, 2 holds, 1 sell recommendation, 12-month PT 148 rupees

To contact the reporter on this story: Nupur Acharya in Mumbai at nacharya7@bloomberg.net To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net Margo Towie

(Bloomberg) -- Maersk to get 97.5m shares in Total S.A. with a value of $4.95b, equal to approx. 3.76% of Total. Total is also assuming a short term debt of $2.5b via debt push down from Maersk group into Maersk Oil.

• Subject to meeting its investment grade objective, Maersk plans to return a material portion of the value of the received Total shares to shareholders in 2018/19 in the form of extraordinary dividend, share buyback and/or distribution of Total shares
• Transaction gain after tax for Maersk amounts to $2.8b
• Deal completion expected Q1 2018

Link to Statement: Sale of Mærsk Olie og Gas A/S To contact the reporter on this story: Gelu Sulugiuc in Copenhagen at gsulugiuc@bloomberg.net

(Bloomberg) -- Bund futures (RX1) technical levels in focus.

• Daily Trend Bias: Bullish
• Comment: Bulls still have upper hand despite late Friday reversal; line-in-the-sand drawn at 163.36
  • Resistance: 164.37; 164.48; 164.64; 164.79; 164.88; 164.99
  • Support: 164.00; 163.89; 163.71-70; 163.36
• NOTE: Roll-adjusted by difference in GFUT
• NOTE: Sejul Gokal is a FICC technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

To contact the reporter on this story: Sejul Gokal in London at sgokal1@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Neil Chatterjee