Halister News

(Bloomberg) -- PGBs may be set for a rebound as Portugal’s fiscal situation remains under control, future issuance is manageable as long as ECB keeps buying and the political landscape is unexpectedly stable, JPM analysts including Gianluca Salford write in client note.

• Stays short 6Y bonds vs Cyprus for now as uncertainty about the ECB’s next steps and ahead of possible rating action by DBRS may lead to further PGB weakness in the weeks ahead
• A less dovish ECB is raising fears of tapering, hurting countries where there has been headline risk, and ECB buying of PGBs has declined significantly
• Do expect ECB purchases to provide less support regardless of the outcome of the DBRS review as any tweaks to QE would only extend the lifespan to Sept. 2017 at the latest; some changes would only allow for purchases to continue to April/May
• That said, plans to close the trade in the next few weeks as doesn’t expect DBRS to change its rating and as may see a decent yield reduction on any confirmation of a stable outlook