Halister News

(Bloomberg) -- Implied volatility for rates, utilities and emerging-market equities remains low and ECB taper talk could lead to a reaction in those assets, MRA head of derivatives strategy Pravit Chintawongvanich writes in a note.

• Looks at what moved during the Fed taper tantrum in 2013
• Recommends iShares 20+ Year Treasury Bond ETF (TLT) August $126/$121 put spreads, Utilities Select Sector SPDR Fund (XLU) August $53/$50 put spreads, iShares MSCI Emerging Markets ETF (EEM) August $41/$38 put spreads
• NOTE: Draghi’s Prudence Warning Confirmed in Reaction to His Words

To contact the reporter on this story: Cecile Vannucci in London at cvannucci1@bloomberg.net To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net Richard Richtmyer

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(Bloomberg) -- While CMBS has pulled ahead of last year’s pace, the bigger question for investors is 2018, Deutsche Bank analysts Ed Reardon and Simon Mui wrote in research note.

• “In 2018 we expect a decline in gross supply to about $57b due to the drop in legacy CMBS maturities and intense competition from other lenders, especially banks”
• CMBS will continue lending in secondary and tertiary markets and make loans that are either too big for insurance lenders or loans where borrower wants more flexibility
• Spreads may soften into the end of the year as “strong technicals” ease and investors continue favoring medium duration bonds versus long duration new issue
• DB currently views CMBS as fair versus investment grade corporate bonds; approach is to compare CMBS 10Y “stack” versus long duration single-A IG bonds
  • Recommends a short of CMBX.BBB-.6 and BBB-.7 risk; “risk premiums are insufficient for these indices and spreads could widen 175-275bp from here”
  • Add 2014 AAAs at low 90s spreads; 2014 AAA LCF bonds should begin rolling down CMBS term curve into stronger 5-7Y investor demand
  • SASB remains preferred method of adding more spread versus conduit

To contact the reporter on this story: Charles Williams in New York at cwilliams204@bloomberg.net To contact the editors responsible for this story: Christopher DeReza at cdereza1@bloomberg.net Charles Williams, Allan Lopez

(Bloomberg) -- GBP rates gamma grid extends flattening bias as Governor Carney said the BOE has "limited" tolerance for faster inflation and “some removal of monetary stimulus is likely to become necessary", introducing two-way risk into the rates outlook.

• See chart here of 3-month 2s10s implied vol curve, which has flattened to near pre-Brexit levels
• Sonia MPC-dated forwards now pricing a 25bps rate increase in May 2018 vs August 2018 prior to the release; that is only move fully priced for next year
• Chance of a one-and-done BOE rate move has increased with Carney noting any rate changes would be limited and gradual; consumers continue to face a real-income squeeze and tail risk of chaotic Brexit has increased
• See analysis here from June 22: GBP rates gamma curve flattening may extend on mixed MPC signals
• 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