Halister News

(Bloomberg) -- Intermediate maturities are most compelling, with the 20-year maturity offering 95 percent capture of the curve, Oppenheimer’s Jeffrey Lipton wrote in a research note.

• Recommend above-market coupon bonds tend to perform relatively well during periods of adverse market movements
• Forecast tax- exempt bonds will price higher over the course of the summer as demand strengthens and issuance remains muted
• Summer months best time to review portfolio, make adjustments "if investment guidelines are at risk of being compromised"
• Bloomberg clients: We’ll be doing a TOPLive Q&A on Thursday, June 22 at noon ET, moderated by Martin Z. Braun, in which you can ask Joe Mysak questions about the latest with Connecticut, its debt downgrades, budget deficit and more. You can watch it here. If you want to ask a question, please send toTOPLive@bloomberg.net

To contact the reporter on this story: Kristy Westgard in New York at kwestgard1@bloomberg.net

(Bloomberg) -- The Trump administration last week proposed a modification to banks’ leverage ratio calculations, which would boost market-making in USTs and other capital market activities that are “low risk but balance sheet intensive,” and would have “a material impact on asset pricing,” Credit Suisse strategists led by Praveen Korapaty say in note.

• Proposed change would remove cash and Treasuries from the denominator when calculating leverage exposure, putting balance sheet cost in capital terms near zero
• Repo intermediation would become more economical, and there would be “fewer and less sustained dislocations on the Treasury spline” as periods of large one-sided flows would become less costly to manage
• Likely effects on asset prices include:
  • Tighter GC-triparty and GC-fed funds spreads
  • Wider swap spreads
  • Wider MBS basis
  • Wider corporate spreads
  • Higher fed funds in the IOER/RRP corridor
• While exemption of Treasuries would depart from current international norms, change is likely to be adopted; process is likely to take at least a year, however, pending confirmation of regulatory appointments and public comment period

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang

(Bloomberg) -- Shorter-duration assets could struggle as the market has already priced in a "Fed pause," despite easy financial conditions and booming asset prices, UBS credit strategists Stephen Caprio and Matthew Mish say in a report on Wednesday.

• Credit risk remains underpriced relative to duration risk given tightness of spreads, yet credit risks aren’t receding amid weak corporate earnings, higher consumer delinquencies
  • Recommends rotating further into longer-duration U.S. IG (BBB) over HY (BB) to capitalize on 21bp yield advantage
  • Also recommends buying put options on HY ETFs given near record-lows in short-dated implied volatility
  • Risks to recommendations include greater expectations for U.S. tax reform with market now "underwhelmed with Washington politics"; a Fed that lets inflation exceed 2% target; and potential new source of HY demand from insurance cos.
• U.S. insurers may face lower capital charges to invest in HY starting in 2018, presenting upside potential and driving HY spreads even tighter
  • Sees insurers maintaining strong credit-risk aversion, likely reaching for yield by buying longer-duration assets, BBB rated U.S. IG credit and illiquid assets
  • Lower capital charges won’t “reflexively” push insurers into BB rated HY, when long-duration BBB credit is yielding more

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net Kenneth Pringle, Rick Green