HALISTER1: PGBs Offer ’Juicy’ Yields But Substantial Room to Sell Off: UBS

PGBs Offer ’Juicy’ Yields But Substantial Room to Sell Off: UBS

(Bloomberg) -- PGBs offer juicy yields but don’t have an attractive risk-reward profile given challenging fundamentals and credit rating risks skewed to the downside, analysts including Lefteris Farmakis and Nishay Patel write in note.
  • PGBs have substantial room to sell off were Portugal to lose market access, or in a situation of generalized risk aversion, but any gains are likely to be modest on an upside scenario
  • Recent statements by DBRS don’t suggest a high likelihood of an imminent downgrade but credit rating risks are arguably skewed to the downside
  • Not recommending outright negative stance as recent price action already reflects deteriorating fundamentals to a significant extent
  • In a separate note, Morgan Stanley analysts still expect investors to focus on idiosyncratic sovereign risks in the medium term; expect PGBs and BTPs to continue to underperform SPGBs
  • NOTE: 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 said last week
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Lefteris Farmakis (UBS Asset Management Japan Ltd)
Nishay Patel (UBS Global Asset Management Japan Ltd)

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