Halister News

(Bloomberg) -- Schatz may underperform Eonia given the extreme pricing of German repo in anticipation of two-tiered system if ECB delivers only a 10bp depo cut, HSBC strategist Subhrajit Banerjee writes in client note.

• Exempting TLTRO liquidity based on banks’ lending profiles is a way to soften the impact of deeply negative rates
  • But given the Eonia forward curve, estimate spread of ~15bp is priced between higher and the lower depo rates, and share of excess reserves associated to the latter is likely 80%
• ECB disappointment may result in a higher euro and flattening pressure on the bund curve, more so than OIS
• If the ECB introduces a two-tiered system, Eonia curve can out-steepen the bund curve as the ECB may not want to link 80% of excess reserves to the lower depo rate
• Linking a smaller liquidity share to a lower depo will put upward pressure on Eonia forwards as effective depo will fix higher

(To subscribe to EU Credit Daily, click here and set alert via ‘"Display & Edit’’) By Simon Ballard (Bloomberg) -- BIS comments citing uncertainty over the transmission mechanism of further negative rates should have come as little surprise, but credit markets may nevertheless be prone to a sell-off if the ECB fails to deliver at a rate decision this week, Bloomberg strategist Simon Ballard writes.

• Such is the degree of expectation amid a challenging global macro backdrop, that risk-asset price stability mimics an addict and remains dependent on the “dealer” coming up with the next monetary policy “fix”
• Corp credit will still be seen by many investors as offering compelling buy-and-hold incremental yield opportunities, if they can tolerate mark-to-market risk
  • Current weakness in HY spreads are driven by fears that ECB will disappoint at its March 10 rate decision
  • S&P data shows European HY default rate fell to 1.4% in Feb from 1.8% in Jan
  • From a macro perspective, expect focus to be on Eurozone GDP data today at 10am GMT

• Risk Appetite model’s robustness reflects underlying demand for spread product, even as sub-IG bond pricing remains under pressure
• CDX IG is currently -0.1bps at 93.82 in overnight session; iTraxx Asia Ex Japan IG is currently +0.5bps at 151.64

NEWS

• Corporate News
• RWE Posts Loss at U.K. Business After Customer Defections
• Merck KGaA Profit Beats Estimates On Life-Sciences Business
• SAS Maintains FY Outlook in 1Q Results
• Lindt Aims to Surpass Godiva’s Chocolate Retail Network by 2020
• U.K. LFL Feb. Retail Sales Up 0.1% Y/y, BRC Says
• Biggest LNG Buyer Turning Seller as Reload Terminal to Start
• Veolia to Sell Up to EU700m of Convertible Bonds

• Financial News
• Ex-Goldman Banker to 1MDB Fund Said Subpoenaed in U.S. Probe
• Negative Rates Fail to Spur Japan Bank Loans in First Month
• Spain’s Bad Bank Sareb Refinances Half Its Debt: Expansion
• CBA, NAB, Westpac execs grilled in bank bill rigging probe

• Rating News
• Bimbo Credit Outlook Raised to Stable From Negative by Moody’s
• S&P Affirms ’BBB’ Rtg On China Travel Service; Otlk Stable
• Fallen Angels Stoke Credit Risk Among Junk Issuers: Moody’s

• Other News
• Pimco Says Time to Buy Riskier Debt as U.S. to Avoid Recession
• Noble Group Debt Back Above 60 Cents as Commodity Distress Eases

ANALYST VIEWS

• This week could well define not just the first term, but the first half of 2016 with respect to performance. It has the potential to deliver a binary outcome: creditmarketdaily.com

NEW ISSUES

• BFCM EU1.5b Long 3Y MS +48
• CAFFIL EU350m 1/2035 Covered Bond Tap MS +34
• CFF EU1b 6Y Covered MS +15
• HSBC Holdings EU3.25b Two-Part Deal
• International Flavors & Fragrances EU500m 8Y MS +142
• Morgan Stanley EU1.5b 8Y MS +145
• State of Saarland EU300m 3/2023 FRN 3mE +6
• 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) -- U.K. to sell 3.75% 07/2052 for GBP1.25b at 11:30am CET.

• Citi (Saumesh Dutta, Aman Bansal)
  • Gilt coupons provide supportive backdrop; GBP5.2b to be repaid on March 7; issue has cheapened on the curve, looks historically cheap vs neighboring issues
  • Bond has cheapened consistently vs swaps over past 12 months, looks set to continue as Brexit risk intensifies; see limited value in owning swap spreads at current levels

• Santander (Adam Dent)
  • Smaller target size, last auction of fiscal year before 3-week break; long gilt yields have stabilized from record lows; long-term growth concerns likely to keep yields suppressed
  • Bond has seen some curve concession, now trades cheap vs neighbors; 40Y sector itself is slightly cheap on long end of curve; once supply pressure abates may reverse, outperform in coming months
  • ASW at long-end looks set to continue grinding wider, 2052s looks like reasonable choice

• UBS (Nishay Patel)
  • Last bond sale of this fiscal year, coupons of ~GBP5b are due on March 7 with ~20% of these coming from 15Y+ bonds; 2052 is closer to rich end of 1Y range on barbell vs 2045s, 2060s
  • Long-end of gilt curve close to flattest level in a year, has outperformed swaps; ASW box close to steeper end of 1Y range

• BNP (Parisha Saimbi)
  • Sharp cheapening in long-end gilt ASW may attract pension fund demand; 30Y gilts have underperformed on curve, appear cheap; though trades ~4bps rich in z- spread like most of the sector
  • Lack of conventional gilt supply until April may encourage some flattening beyond 10Y