By Andrea Johnson
Feb 27 (IFR) - We head into Wednesday well shy of the estimate of more than USD20bn in volume for the US high-grade market this week, though risk tone has been helped by Ben Bernanke's dovish remarks.
The decent results from this morning's Italian auction have also provided a boost, leaving equities nearly unchanged. (Dow Futures are up 10, S&P Futures up 0.70, Nasdaq Futures up 0.25).
The 10yr UST yield is down 2.1bp at 1.865%, so we shall see if US issuers take advantage of lower rates in a more stable market, and push us past the current tally of USD12.65bn.
MARKETS
After a bloodbath for synthetic credit and the periphery in the wake of the Italian election stalemate, it was some relief to have a bit of calm to start the day's trading in Europe.
Bernanke's slightly dovish statement to Congress led to a decent relief rally in US stocks. That translated into gains for most Asian bourses - with the exception of the Nikkei, which registered a three-figure drop on yen strength. That in turn led to some corrective tightening for European credit on the open.
The iTraxx Main index begin the session 1.5bp tighter at 120bp, with the Crossover 6bp tighter at 467bp, although given the widening in both indices yesterday - the biggest intraday moves in well over three months - that was a mere drop in the ocean.
The indices widened a touch ahead of the Tesoro's sale of a new 10yr BTP and tap of the on-the-run 5yr, but a relatively good auction result put the Main back at its opening level with the Crossover 11bp tighter at 462bp.
Italy sold a total of EUR6.5bn across the two, at the upper end of the expected range. The main body of the fill came in the new 10yr - BTP4.5% May 2023 - which attracted a bid-to-cover ratio of 1.654:1 on a fill of EUR4bn. The BTP3.5% November (Xetra: A0Z24E - news) 2017 garnered a cover ratio of 1.614:1 on the balance.
As ever, the real indication of investor interest lay in the pricing.
The average yield on the 10yr came in at 4.83%, which was around 12bp through the offer side of the market as the bidding deadline expired, while the yield on the 5yr came in at 3.59%, 10bp through the offer side as the bids went in.
That was impressive - even after taking away the primary dealer auction concession - and indicated that investors turned out in droves, lured by a major outright concession and some decent inherent value on both issues.
Italian 10yr yields hit 4.93% before the auction, and then dropped to 4.85% afterward.
CALENDAR
Chilean financial institution Tanner starts a roadshow today (BAML coordinating) for its international debt debut. One team will visit Zurich, London, Boston and New York, starting today, while team two will be in Lima, Bogota, Los Angeles and Miami, starting tomorrow. Ratings are BBB-/BBB-. Fitch has put a size of up to USD300m on the new five-year senior bond.
Indian telecoms operator Bharti Airtel (BB+/BBB-, S&P/Fitch) began a roadshow this week for a proposed USD 144A/Reg S offering via Barclays (LSE: BARC.L - news) , BNP Paribas (Milan: BNP.MI - news) , Citigroup (NYSE: C - news) , Deutsche Bank (Xetra: 514000 - news) , HSBC (LSE: HSBA.L - news) , Standard Chartered (Other OTC: SCBFF - news) and UBS (Berlin: UBRA.BE - news) . Meetings are due to be held in Asia, Europe and the US.
The Bank of England has indicated that it will issue a new dollar bond to finance its foreign exchange reserves in the week of March 11, market sources said.
Bankers expect a mandate to emerge as early as this week for a USD2bn three-year 144A/Reg S deal, to refinance an outstanding USD2bn 1.625% bond that matures on 18 March 2013. The trade will be the bank's seventh annual three-year dollar issue.
OTHER NEWS
GERMAN CONSUMER MORALE RISES FOR SECOND MONTH - REUTERS: Consumer morale rose in Germany for a second consecutive month heading into March, market research group GfK said.
The forward-looking consumer sentiment indicator, based on a survey of around 2,000 Germans, rose to 5.9 going into March from 5.8 in February, boosted by an improvement in economic expectations and a greater willingness to buy.
EU MOVES CLOSER TO BANKER BONUS CAPS - REUTERS: The European parliament and EU states could agree today to impose caps on bankers' bonuses, a measure that would channel public fury at financial sector greed, but which opponents say marks a reckless overreach by Brussels into private pay deals.
OBAMA WARNS OF THREATS AS SPENDING CUTS LOOM - REUTERS: President Obama warned of threats to Navy readiness if automatic spending cuts are not stopped. Scheduled maintenance to the USS Abraham Lincoln has been delayed by the budget crisis. The US Immigrate and Customs Enforcement agency released several hundred detained illegal immigrants in order to save money in preparations for the cuts. The reductions will force the Pentagon to put most of its 800,000 civilian employees on unpaid leave for 22 days, curtail training, and cancel maintenance work.
ARGENTINA APPEALS BOND PAYMENT DECISION - REUTERS: Argentina heads to the second US circuit court of appeals in New York court today to try to reverse an order to pay USD1.3bn to a group of dissident bondholders holding out from the 2001 default. Economy Minister Hernan Lorenzino will attend.
EU TO APPROVE ROSNEFT/TNK-BP - REUTERS: Rosneft is expected to win unconditional European Union regulatory approval for its TNK-BP (LSE: BP.L - news) takeover bid, taking it closer to completing the USD55bn deal.
TRIBUNE CO HIRES FOR NEWSPAPER SALE - REUTERS: Tribune Co has hired Evercore and JPMorgan (LSE: JPIU.L - news) to assess interest in its newspaper unit, which includes the Los Angeles Times and Chicago Tribune.
NEW JERSEY LEGALISES ONLINE GAMBLING - FT: New Jersey legislators passed a bill legalising online gambling, a move governor Chris Christie said would make Atlantic City more competitive and benefit the state financially.
DATA
07:00 MBA mortgage application indices (wk Feb 22)
08:30 Durable Goods (Jan) (mkt -4.4% m/m, prev +4.3% m/m)
08:30 Durable Goods ex-Trans (Jan) (mkt +0.2% m/m, prev +1.0% m/m)
08:30 Nondefense Capital Goods ex-Air (Jan) (mkt +0.2% m/m, prev -0.3% m/m)
10:00 Pending Home Sales Index (Jan) (mkt +1.5% m/m, prev -4.3% m/m)
EVENTS
10:00 Fed Chair Bernanke testifies before House Committee on Financial Services
11:00 Fed outright Treasury coupon purchase (02/28/2017 - 11/15/2017) ($4.25 - $5.25 bln)
16:30 FRB Dallas's Fisher (non-voter, hawk) on the economic outlook
ISSUANCE
13:00 Treasury auctions $29 bln 7-year notes
U.S. Treasuries..........
U.S. Treasury outlook...
U.S. corporate bonds....
U.S. agencies...........
U.S. mortgage-backeds...
U.S. asset-backeds......
U.S. municipal bonds... (Andrea Johnson is a senior IFR analyst; With additional reporting by the IFR team; Editing by Marc Carnegie)
