Halister News

(To subscribe to EU Credit Daily, click here and set alert via ‘"Display & Edit’’) By Simon Ballard (Bloomberg) -- Quality likely to remain a core strategic theme for investors in coming weeks; this is evident in any current attempts by (synthetic) credit indexes to edge tighter being reversed and spreads retaining widening bias for choice, Bloomberg strategist Simon Ballard writes.

• Credit-mkt volatility likely to remain elevated going forward; should continue to fuel defensive, fundamentally- driven quality bias
• Valuations may look attractive after recent selloff, but are countered by still-opaque macroeconomic outlook and fundamental credit-quality challenges; little evidence thus far of meaningful bottom fishing
  • Primary mkt open for issuers that need to lock in funds; Apple $12bn deal may be latest use of bondholders to avoid repatriating overseas cash
  • Reassurance of Fed pausing policy normalization and confirmation of new ECB stimulus could be fillips for risk appetite and mkt stability, but not until March at the earliest
  • Any momentum towards extending negative rates environment may dent bank balance sheets, favor investors moving up the bank capital structures

• Risk Appetite Model: Consolidating around 40% vol, 105bps spread dispersion

• CDX IG currently +1.0bps at 121.46 in overnight session; iTraxx Asia Ex Japan IG is currently +0.5bps at 166.14

NEWS

• Corporate News
• Woodside Profit Wiped Out as CEO Coleman Doubts Oil Recovery
• Storebrand 4Q Net Income Beats Estimates; Won’t Pay Div for 2015
• Glencore Signs Loan to Refinance $8.45 Billion Credit Facility

• Financial News
• ABN Amro Fourth-Quarter Profit Drops as Regulatory Costs Rise
• OCBC Rallies on Earnings Surprise as Singapore Bank Rivals Fall
• Credit Agricole 4Q Net Rises 28%, Beats Ests.; Revamp Planned
• ANZ Bank Warns of Asia Volatility as Cash Profit Rises

• Rating News
• China Debt Binge Spurs S&P Warning as Magnus Sees Big Risks
• Indonesia Rating Upgrade May Be Delayed by Coal-Price Slump: S&P

• Other News
• Corp Bond Sales Surge Above $23 Billion as Apple Sells Debt
• China Banks Seen Hiding Losses in ‘Opaque’ Receivables Accounts
• Worst Earnings Letdown Since Crisis Adding to Europe Stock Woes

ANALYST VIEWS

• Looking forward to December 2016; quantitative approach is signaling further increases in US HY default rates to as high as 5.5%, and broadly stable Euro HY default rates in the 2.5% to 3% range: CreditSights
• Don’t back up the truck just yet; it is so tempting to think about backing up the truck. After all, entry levels are so much better than they were: creditmarketdaily.com

NEW ISSUES

• Austria EU5b Two-Part Deal
• BAWAG EU500m 6Y Covered MS +27
• BNP Paribas EU1b 10Y MS +105
• State of Bremen EU600m 8Y MS -1
• FMS Wertmanagement $750m 3Y FRN 3mL +30
• Helaba EU1.25b 11/2020 Covered MS -1
• Santander Consumer Bank EU500m 3Y MS +120
• SocGen EU1.75b 2-Part Deal
• 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) -- The decline in Australian breakeven interest rates is mostly in line with those of its major trading partners, with some notable differences, according to three Sydney-based market participants.

• Tano Pelosi, portfolio manager, Nabinvest Capital Partners
  • The collapse in long run inflation expectations is ominous for central banks and the global economy given the implications
  • If there is an unmooring of inflationary expectations it would indicate a loss of central bank credibility; with a herculean task to correct it
  • Inflation linked bonds are being hit harder than many nominal bonds as global liquidity dries up; could complicate any change of market direction
• Martin Whetton, director AUD rates strategy, ANZ
  • RBA has been quite successful in keeping inflation within its target range during economic cycles
  • A key difference with the US is the oil component, which has a bigger influence in the US expectations, than Australia’s
  • Australia’s more regulated utilities also help moderate fall in break even rates
• Ben Jarman, senior economist, JP Morgan
  • The degree of correlation with oil has been surprising. The oil price today has little bearing on how inflation dynamics will play out over a 10-year horizon
  • US is experiencing a double-whammy of weaker oil and a strengthening currency, while Australia has a falling AUD to offset global deflationary forces
  • Clear signs of an oil supply accord and stabilization in prices will go a long way to putting a bottom under market based inflation measures globally
  • RBA is fairly consistent in saying that domestic inflation expectations are well anchored

--MARTIJN VAN DER STARRE

--FRANK CONNELLY