Halister News

(Bloomberg) -- Recommend investors increase exposure to globally-exposed U.K. credits for relative safety as spreads may widen further going into the referendum on EU membership, BofAML analysts write in client note.

• Alternatively could switch into credit denominated in other currencies, specifically USD credit
• Recommend buying protection on RBS, Barclays senior CDS from sell protection, and move to neutral on subordinated CDS from sell protection
  • Lower BOE rates for longer, weaker growth outlook, risks to property prices and turmoil in financial markets very likely to impact U.K. banks in the event of Brexit; Santander and Bank of Ireland could also be affected
• Among other sectors, retail and consumer sectors are likely to be some of the more volatile sectors in the run-up to the referendum
  • Energy names are vulnerable to funding-costs doubts, while utilities are exposed to domestic growth, higher gilts and the decoupling from EU Energy policy
  • Telecoms may underperform under a Brexit scenario as there would be a risk of regulatory change
  • Real estate is also highly exposed, but there’s value in

names with lesser U.K. exposure given current valuations

• Outflows have already started to increase but cash and CDS spreads are still to catch up, especially when compared to moves in sovereign CDS and the correlation between EUR, GBP cash
• Brexit impact on euro spreads outside of those with significant U.K. exposure is unlikely to be large, given the other factors currently in play
  • Issuance from U.K.-domiciled names may decrease slightly were the U.K. to vote to leave, that shouldn’t be enough to become a significant positive technical for euro spreads