Halister News

(Bloomberg) -- Following are forecasts for today’s economic releases as compiled by Bloomberg News.

• KC Fed 12; range 10 to 12 (6 estimates)

To contact the reporters on this story: Chris Middleton in Washington at cmiddleton2@bloomberg.net; Vincent Del Giudice in Denver at vdelgiudice@bloomberg.net To contact the editors responsible for this story: Alex Tanzi at atanzi@bloomberg.net Kristy Scheuble

(Bloomberg) -- Fed is setting the stage for a 5s30s Treasury curve steepener with balance-sheet normalization starting “relatively soon” and with federal funds rate not having to rise much further to a neutral policy stance, under the assumption that real neutral rate will remain around zero.

• The prospect of a higher terminal rate is now dependent on fiscal policy; it has been falling, implying lower policy rates, with the Fed acknowledging persistently subdued inflation dynamics (“below” instead of “somewhat below” its 2% target) with core PCE currently at 1.4%
• Fed rate-hike expectations have also been diminishing given the primary focus of initiating balance-sheet normalization, with odds of an increase in December now priced at less than 50%
• U.S. breakevens are staging a tactical rally with the move higher in energy prices/industrial metals and fall in the dollar; however, scope for a sustained move higher remains limited in the face of central bank balance-sheet reduction, declining survey-based expectations and secular disinflation trends
• Once balance-sheet reduction starts, increases in fed funds rate -- which “would not have to rise all that much further to get to a neutral policy stance,” in Yellen’s own words -- may be deferred
• Given the historically low levels of implied volatility, the binary nature of the outlook and balance sheet/fed funds interaction, 5s30s curve spreads maybe favored besides outright UST steepeners; for example, a 1-year 5s30s single-look spread cap is indicatively priced at 14c
• NOTE: Tanvir Sandhu is an interest- rate and derivatives 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: Tanvir Sandhu in London at tsandhu17@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma

(Bloomberg) -- BTG maintains positive view on Latam Airlines bonds, with LATAIR 24s offering attractive carry trading at 436 bps z-spread, according to note from analysts Josefina Valdivia and Thomas Tenyi.

• 2020s look tighter, trading 84bps inside the spread of retailer SMU’s 2020s and 107 bps inside that of oil co. Geopark
• NOTE: SMU and Geopark are junk bond issuers also based in Chile
• Latam is looking for refinancing opportunities to reduce interest expense and could consider calling TAM21 bonds in short term
• Latam could generate $730m in FCF in 2017, net leverage could reach below 4x by end 2018
• Latam should benefit from increased exposure to Brazil as demand should recover along with GDP growth

To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net Christiana Sciaudone

--PETER EICHENBAUM