Halister News

(Bloomberg) -- March ECB meeting now seems a long way away and would remain cautious near-term, writes Citigroup strategist Alessandro Tentori, in a client note.

• Yday’s spread widening is challenging the “post-QE paradigm”
• For the moment, it appears that ECB’s QE program is still preventing periphery from repricing in line with risky assets, but price action has definitely worsened as of late
• Spillover into semi-core is particularly worrying, especially for countries like France which have relied in the past on a large non-resident investor base

(Bloomberg) -- The I/L 2026 gilt cheapened by ~7bps in breakeven yday, underperforming peers, this RV concession ought to be sufficient to ensure a reasonable result, writes Barclays analyst Henry Skeoch in a client note.

• Forward breakeven between the IL 2019/IL 2026 is at 2.5%, which represents attractive value
• Don’t expect significant ASW demand, despite discount offered, breakeven demand will be key determinant to auction success
• Potential for some nervousness around supply, given very weak 2021 auction in Jan.

• NOTE: U.K. to sell 0.125% I/L 03/2026 gilt for GBP1.3b

(Bloomberg) -- Austria to sell 1.2% 10/2025, 3.15% 06/2044 for EU1.1b at 11:15am CET. Analysts highlight attractive cross-market valuations vs Germany.

• UBS (Nishay Patel)
  • 10Y has richened vs 5s, 30s since mid-Dec, mostly led by the flattening of 5s10s; cross-market, trades around cheapest level of 6-month range vs Germany, France
  • Austria 5s10s box is at 6-month wides vs Germany, 30Y close to cheapest levels in a year vs Germany, France, as well as on ASW

• Barclays (Henry Skeoch)
  • RAGB 10/2025 has seen small concession ~1bp vs peers, trades close to cheap levels on the roll; cross market, has underperformed bunds by ~10bps since early Dec., now trades at 6-month wides
  • RAGB 06/2044 has cheapened ~11bp vs bunds since early Dec., spreads at widest levels since 2013

• Mizuho (Antoine Bouvet)
• 10Y trades cheap on the Austrian fitted curve, after recent underperformance vs peers; 06/2044s trade close to fair value

(To subscribe to EU Credit Daily, click here and set alert via ‘"Display & Edit’’) By Simon Ballard (Bloomberg) -- The much-bemoaned illiquidity of secondary credit markets is manifesting itself early this week in sharply wider spreads and steeper quality curves as risk aversion grips financial mkts. Synthetic credit indexes are again experiencing the largest moves, due to the relative liquidity between CDS and cash, and with sub-financial risk under particular pressure, Bloomberg strategist Simon Ballard writes.

• Financials are at the heart of the latest mkt volatility; Deutsche Bank’s ressurance that it can meet its debt service cost obligations has exacerbated rather than calmed investor concerns; iTraxx sub financial index was a clear underperformer Monday
  • Many investors also concerned that current regulatory environment now means no buyer of last resort for any fund outflows as bank balance sheets limited
  • Elsewhere, selloff being fuelled by broad macroeconomic uncertainty in wake of January U.S. jobs report, continued weakness in China, commodities
• Wider spreads may soon be seen as attractive; presence of BMW in primary mkt Monday suggests there is still demand for credit risk, at a price
  • Risk Appetite Model shows that while volatility has increased recently, spread dispersion has actually reduced a little

• CDX IG currently trading -0.5bps at 119.88 in overnight session; iTraxx Asia Ex Japan IG is currently -3.3bps at 157.21

NEWS

• Corporate News
• Sanofi 4Q EPS Beats, Sales Miss; Sees 2016 EPS Broadly Stable
• Yamaha Motor Falls Most in 34 Years as Forecast Misses Estimates
• Tata Motors Falls After JLR January Sales in North America Slow
• McDonald’s Japan Forecasts First Full-Year Profits in 3 Years

• Financial News
• Handelsbanken Profit Rose Less Than Estimated in 4Q
• Japanese Financial Stocks Plunge After European Bank Selloff
• Skandiabanken 4Q Net Income Rises; Annual Lending Growth 11.4%
• Swedbank CEO Michael Wolf to Be Replaced After Seven Years

• Rating News
• Costa Rica Outlook to Negative from Stable by Moody’s
• Genworth Life Insurance Cut to Junk by Fitch, Outlook Negative

• Other News
• Global Bond Rally Near ‘Panic’ Level With Japan Yield Below Zero
• Pound Seen Tumbling Whether U.K. Stays in EU or Seeks ‘Brexit’
• Oil Snaps 3-Day Slide in Rebound to $30 Before U.S. Supply Data

ANALYST VIEWS

• The key message is that CoCos are “designed to fail” without triggering a bank default: creditmarketdaily.com

NEW ISSUES

• BMW Finance EU1.25b 2-tranche deal; EU500m 7/2019 FRN at 3mE +65, EU750m 6Y bonds at MS +85
• FMS Wertmanagement tapped FMSWER 1% 4/2018 by GBP100m, UKT +49
• 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.