Halister News

Economic Release Details: {EUESEMU Index ECOD} --ZOE SCHNEEWEISS

(Bloomberg) -- “Buying the dip” might not work as well as it has over the past few years for EGB spreads, especially peripheral bonds, writes Barclays strategist Cagdas Aksu, in a client note.

• Scenario has changed due to the poor global macro backdrop, the reduced capacity of “more of the same” ECB easing to surprise positively, domestic political and U.K. referendum risks, and positioning
• Focus on EGB trades with limited downside if risk-on returns to EGB spreads but offer good potential upside if EGB spreads become vulnerable especially if U.K. referendum risks are priced in more notably
• Recommend short 50% Ireland and 50% Belgium vs Netherlands in 7y as a low-downside U.K. referendum trade, given that EGB spreads price in little risk premium for this
• Overall, poor risk/reward in outright and curve trades
• Market is priced in for March 10bp depo cut plus either a modest QE easing or some technical changes to QE
• Remain short Bund ASW vs Eonia as good risk/reward way to express a short duration view

(Bloomberg) -- Expect 20bps deposit-rate cut in March, accompanied by tiering to create more room to reduce rate while allaying concerns over impact on banking sector, Ken Wattret, economist at BNP Paribas, writes in client note.

• Previously expected ECB to cut deposit rate by 10bps
• Downside risks to growth and CPI point to a more substantial, broader-based package of measures
• Currency strength, tighter financial and monetary conditions, are all factors which play in favor of a bigger- than-10bps deposit rate cut
• An announcement of tiering is likely already in March as would alleviate concerns about the impact on banks and provide more room to cut rates further
• If not announced in March, ECB will probably signal that tiering is on the way
• Still expect the monthly run-rate of asset purchases to rise by EU10b, accompanied by further extension of reference date to Sept. 2017
  • It could be larger, but probably not by much, given scarcity issues
• Expect ECB to announce longer-term liquidity provision to banks on more favorable terms compared with TLTROs
• Among measures which are unlikely to be announced, BNP cites purchase packages of loans, bank debt

(Bloomberg) -- Don’t expect the U.K. to vote to leave the EU; steepener trade tries to capture upside of rising Brexit risks while limiting downside if polls start to point more clearly toward a remain vote, SocGen strategists, including Jason Simpson, write in a note.

• Enter 5-yr fwd 5s10s steepeners at 10bp, target 25bp, stop 2bp; carry 0.75bp per month
  • Buy 2% Jul-2020 on asset swap versus selling the 5% Mar-2025 at 14.5bp spread; target 20bp; stop at 12bp
• 5Y inflation swaps should benefit from a weaker GBP and see longs in 5-year RPI swaps are the best way to express the inflation risks surrounding Brexit
  • Target a move down to 25bp

(Bloomberg) -- Italy to sell new 1.60% 06/2026 bonds for EU3.5b-4.0b, 0.65% 11/2020 for EU1.75b-2.25b, and I/L 12/2022 for EU1.5b-2b at 11am CET. Analysts mostly see the new 10Y bond as rich on the roll, offering little value.

• UniCredit (Luca Cazzulani)
  • EU8b in coupon payments from Italy should support; after recent widening in core/peripheral, BTPs have stabilized at relatively high levels; remain positive on spreads
  • New 10Y BTP looks slightly rich on the roll, in RV and cross market vs Germany, Spain
  • 5Y has outperformed slightly vs peers; this is potentially the last tap of this bond

• SocGen (Marc-Henri Thoumin)
  • 10Y BTP looks somewhat rich vs immediate neighbors, less advantageous roll than last time; offers good yield pickup vs shorter-dated bonds, though don’t expect curve steepening to reverse
  • BTP 11/2020 has cheapened modestly, though remains rich vs neighbors; expect limited interest in this bond

• Barclays (Henry Skeoch)
  • 5Y has richened ~2.5bps on the roll over past three weeks from cheap lvls, still ~1bp cheap on the roll; cross-market, has cheapened ~5bps vs Spain in short term; looks to be supply-related concession
  • New 10Y trades ~1bp rich on the roll in grey market, offering little value; cross-market, has cheapened ~5.5bps vs Spain, primarily supply-related

• Mizuho (Peter Chatwell)
  • New 10Y looks rich on the roll; given size of new 10Y, 5Y reopen will be limited size; 5Y has performed well on the Italian fitted curve, an encouraging sign ahead of the auction

(To subscribe to EU Credit Daily, click here and set alert via ‘"Display & Edit’’) By Simon Ballard (Bloomberg) -- A somewhat bifurcated story is playing out in credit mkts as the week evolves: iTraxx, EUR IG cash indexes portray a mkt keen to ratchet spreads tighter from levels that some investors may have perceived as oversold a week ago, while weaker price action in EUR HY index has underscored a lingering defensive sentiment, Bloomberg strategist Simon Ballard writes.

• Volatility fueled by Brexit debate may have faded a little this week, but credit is still highly susceptible to spread gyrations as systemically important issuers declare their solidarity with either ‘in’ or ‘out’ camps
  • Concerns among some investors that rest of EU may not be immune to ‘risk off’ if Brexit probability rises; could intensify spikes in risk aversion, favor up-in-quality investment strategies
• Hopes of ECB stimulus expansion on March 10 likely key pillar of support for near-term EUR risk appetite; may drive EUR credit outperformance vs USD and GBP credit

• Risk Appetite Model highlights tentative retracement in risk valuations from early 2016 weakness
• CDX IG is currently quoted -1.3bps at 112.71 in overnight session; iTraxx Asia Ex Japan IG is currently -3.8bps at 158.47

NEWS

• Corporate News
• Telefonica Has Loss on Restructuring Costs; Sales Beat Estimates
• IAG FY Earnings Matches Est.; Sees 2016 Profit Growth Similar
• Rightmove 2015 Rev., Underlying Oper. Profit Beat Ests.
• Eni Makes a Loss in Q4 as Lower Oil Prices Bite
• Nintendo Cuts Annual Profit Forecast Amid Weak Christmas Sales
• BASF Sees ‘Slight’ Profit Drop as Customers Get Low Oil Benefit

• Financial News
• RBS Posts Eighth Consecutive Annual Loss on Misconduct Charges
• Erste Bank 4Q Net Income Beats; Planned Dividend In Line
• Bank of America Reports 6.26% Delta Lloyd Stake in AFM Filing

• Rating News
• Fitch Affirms Fortescue Metals’ LT IDR at ’BB+’/ Negative
• Moody’s Downgrades Multiple Brazilian Banks, One Bank Holding
• S&P Affirms Netflix ’B+’ Ratings; Outlook Revised To Stable

• Other News
• IMF’S Lagarde Still Sees Growth Even Amid Growing Global Risks
• Man Who Called Emerging-Market Rout Has a Warning for the Bulls

ANALYST VIEWS

• IG spreads are 30bp wider since the beginning of the year. That’s not great in isolation, but it is fantastic all things considered: creditmarketdaily.com

NEW ISSUES

• Schleswig-Holstein EU600M 6Y FRN 3mE +5
• Bremer LB EU300m 4Y MS +85
• NWB Bank GBP250m 12/2019 UKT +58
• UNEDIC EU2b 10Y FRTR +18
• RBC GBP350M 3/2019 Covered FRN 3ML +50
• UBS Holdco EU750m 8Y MS +190
• Nationwide BS EU1.25b 1/2021 Covered Bond MS +21
• Banco Popular Espanol EU1.5b 6Y Covered MS +88
• Slovenia EU1.5b 3/2032 MS +145
• 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.

--MARK DEEN