Halister News

--COURTNEY DENTCH

(Bloomberg) -- Former governor of the northern state of Tamaulipas Tomas Yarrington was arrested on Sunday in Florence, Italy by request of the Mexican attorney general’s office, daily newspaper Reforma reported.

• Yarrington is accused in the U.S. of organized criminal activity and embezzlement in Tamaulipas
• A court in Brownsville, Texas has accused Yarrington of receiving bribes from the Golf Cartel, allowing drug trafficking to the U.S., laundering money, fraud and lying to banks: report
• NOTE: An international arrest warrant agains Yarrington was issued in 2012
• Link to story in Spanish: https://goo.gl/C0O409

(Bloomberg) -- AT&T to acquire Straight Path for $95.63 per share in an all-stock merger intended to qualify as a tax-free reorganization.

• Transaction has a total value of $1.6b which includes liabilities
• $95.63 is a 162% premium to Friday’s close
• Statement:Link

(Bloomberg) -- Recommend going short June OAT futures (OATM7) at 147-72, for an initial target of 144.00, and stops on a close above 150.00, Goldman Sachs strategists including Francesco Garzarelli write a note to clients.

• A victory by a moderate reformist presidential candidate (Fillon, Macron), which is the base case at the bank, would result in a narrowing of French bond spreads but is seen offset by a selloff in core rates
• “Fair level” of 10-year spread to bunds is in the region of 30bp-40bp, from 70bp currently, according to Goldman
• Would expect French bond spreads and yields to come under upward pressure if the first round of election were to result in a strong showing of anti-establishment candidates (Le Pen, Melenchon)
• By contrast, U.S. Treasuries may instead rally on the event, on the back of flight-to-quality flows
• NOTE: Sell or Hedge France Is the Pre-Election Theme

(Bloomberg) -- UST-bund 10-year spread is resuming its widening trajectory after a multi-month pause since late December; EUR/USD risks appear skewed toward 1.05 test amid strong and stable correlation with rate differentials, Bloomberg technical analyst Sejul Gokal writes.

• See chart here; Bund-UST at -216bps
• Spread widened on Friday to as much as 13bps from the high (-203bps) and closed below the trendline that defined the narrowing phase since Dec. at -214bps
  • Candlestick read reveals a key day reversal session which supports near-term widening action (in favor of UST yield)
• MACD dips below zero line, first time since mid-Feb. with negative spread to signal line expanding
• Setup in trend/momentum tools argue for a widening to -221bps at minimum, although count ‘10’ on Candle session study injects cautionary note as it begins to flag risks of exhaustion (9-13 are typical trend reversal/stall numbers)
• Below -221bps, support at -228bps (76.4% Fibonacci) ahead of -238bps (December low)
• A daily spread close back above -202bps would question the widening stance and likely neutralizes the chart view

UST-Bund vs EUR/USD (see chart here)

• Cross-asset correlation read at +0.91 over 30-day rolling period
• EUR/USD next support at 1.0525 and then 1.0495 (March 2 low)
• 1-yr regression analysis shows line-of-best-fit (y=0.001x + 1.313) exhibits an r-square of 0.87, suggesting moves in rate spread (independent variable) provides a statistically significant explanation to movements in EUR/USD spot (dependant variable)

• NOTE: March 22, Bund-UST 10-year spread contracts to -195/-194bps, a level that may not give in so easily

• NOTE: Sejul Gokal is a FICC technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

(Bloomberg) -- With the first round of France’s presidential election drawing near, and risk slowly creeping back into markets, banks recommend selling the country’s bonds, or hedging exposure to its debt.

• Deutsche Bank doesn’t rule out a surprise outcome and keeps a short position on 3-year OATs heading into the first round of the vote
• JPMorgan hedges its long exposure to the country with non- France core wideners

• Deutsche Bank (strategists including Francis Yared)
  • A historical analysis of the French presidential elections indicates that the current gap between the main candidates is not large enough to exclude a surprise
  • From a market perspective, the lower probability/high impact surprises would be, on the negative side, a second round between Mélenchon and Le Pen and, on the positive side, a second round between Fillon and Le Pen
  • The bank maintains short 3-year France, which provides a convex hedge against increased political risk in the country and with limited downside, given the potential repricing of the ECB after the election
  • Maintains Eonia 2y1y-4y1y steepener as the pace of rate hikes priced by the market remains too low
  • Maintains Italy 5s30s steepener as a positive-carry bearish trade on Italy

• JPMorgan (strategists including Fabio Bassi)
  • The bank holds longs in a basket of France, Italy and Spain vs Germany and in Greece and Cyprus
  • Hedge the risk of a Le Pen surprise with attractive risk-reward trades such as selective non-France core wideners, credit-curve flatteners, OW in low-coupon vs UW high-coupon bonds, long protection in 2003 5Y France CDS and long ASW BTPs vs CCTs

• Nomura (strategists including Yujiro Goto)
  • French political risks are influencing Japanese investors’ foreign-investment stance, and they may stay on the sidelines for the time being
  • Japanese investors sold ~$14.2b of French bonds in February, offloading long-term debt for the fourth month in a row
  • This is also the biggest net selling since at least 2005, according to Nomura
  • Selling was likely mostly on an FX-hedged basis, but likely put widening pressure on OAT-bund spreads
  • Banks continue to hold tighter 2-year Schatz swap spreads and Eonia curve steepeners and maintain a short bias on 30-year OATs vs 30-year bunds and SPGBs

• Morgan Stanley (strategists including Anton Heese)
  • Exit 5s30s bund steepener, but still like longs in 5y real yields given ECB’s exit from its monetary accommodation is likely to be slower than what the market prices
  • Bank is moderating its bearish stance on euro zone by taking off short 5y5y breakevens, as it has sold off more aggressively than usual vs both short- and longer- dated forwards
  • Lack of supply through the Easter period will be a bullish driver of breakevens in the near term
  • There will be substantial OATei, OATi and BTPei supply surrounding the French election, along with reinvestment of OAT coupons, which together may weigh on breakevens, but the linker supply is likely to be well taken ahead of the extension upon the OBLi-18s falling out of the index
  • Still like holding EUR 6m10y payer ladder as a way to position for higher rates and 5y forward 2s10s conditional bear steepener to earn carry

• Citigroup (strategists including Harvinder Sian)
  • ECB-speak supports current forward guidance, especially on sequencing, but the debate is not closed
  • The bank continues to hold ECB Sept. meeting pay EUR2y1y versus NZD and 1yr mid-curve Euribor puts
  • S&P recently raised its outlook on Spain’s BBB+ rating from stable to positive, signifying prospects of an upgrade over next 24 months
  • This represents another differentiating characteristic vs Italy and further supports cross-market outperformance of Bonos
  • With the first round of French presidential elections just over two weeks away and opinion polls in Italy showing that 5-Star Movement has built a strong lead over the ruling PD party, market participants should brace for clusters of low levels of futures liquidity in the short/medium term
  • Lower liquidity implies higher volatility and with bund June implied vol at the highest since mid-March, and at widest spread from corresponding swaption vol since early 2015, swaption straddles are a better (proxy) hedge

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