Halister News

(Bloomberg) -- Such is the extent of expectation surrounding tomorrow’s ECB decision and the magnitude of the additional stimulus that many investors are hoping for, that there is a risk that the corporate credit mkt will be left wanting, again, writes Bloomberg strategist Simon Ballard.

• Indeed, some investors argue that risk assets may struggle to produce meaningful positive reaction to anything less than an aspirational 20bps cut in the ECB deposit rate and EU20bn increase in the monthly asset-purchase program
  • Given ECB’s past form of promising all but then failing to deliver, there are concerns that history may repeat itself this week
• Risk-market sentiment, going into the ECB, appears to have shifted in recent sessions; mkt tone also weaker on renewed macro concerns stemming from China
  • Credit mkt previously seemed to be approaching ECB decision with an optimistic, bullish stance, with ECB expected to deliver further monetary accommodation
  • The mkt now adopting a more defensive bias based on concerns that ECB announcements will fall short of stimulus expectations
  • As sentiment has eased pre-ECB, iTraxx Europe has retraced from Tuesday low of 89.75 to latest 91.32; EUR HY cash index has widened ~4bps to 529
  • Eonia currently pricing 100% probability of ECB cutting deposit rate by ~12bps; ~23bps cut priced by Dec. 2016
• EUR credit mkt has been in broad spread tightening trend from mid-February wides, but easing off a little this week ahead of ECB
• Credit-mkt volumes likely to stay muted ahead of ECB meeting, with limited scope for primary mkt to add liquidity
  • Combination of overhanging global macro uncertainty, commodity price fluctuations and potential for ECB to disappoint may leave investors with a defensive bias as we head toward Easter

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.