COLOMBIA: JP Morgan Moves UW COP As Fiscal Risks Mount
Nov-14 14:36
- JP Morgan says that mounting fiscal risks amid a challenging external backdrop put Colombian assets in a precarious position. They note that policymakers have struggled to return to the ~3% of GDP pre-pandemic fiscal deficits, with continuously weak tax collection, attempts to change the fiscal rule and the decentralisation law the key fiscal concerns at the moment.
- Without any offsetting measures, the decentralisation law, which aims to increase transfers from the central government to the regions, could add 1.7%-pts of GDP to the fiscal deficit over the next decade. Discussions continue in Congress, but any version of the law that doesn’t include a transfer of spending responsibilities is likely to further jeopardise Colombia's fiscal outlook.
- JPM says that a potential local currency downgrade to junk will be a key focus next year, with Fitch already at BB+ and S&P at BBB- with a negative outlook. They believe this could trigger $2.5-5bn in outflows from fixed-rate COLTES, representing around 3.5-6.5% of the outstanding stock. JPM anticipates further currency weakness, with COLTES already reflecting increased risk premium, in their view, and move UW COP while staying MW TES in their model portfolio.
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GILT AUCTION PREVIEW: On offer next week
Oct-15 14:32
The DMO has announced it will be looking to sell GBP900mln of the 0.625% Mar-45 linker (ISIN: GB00BMF9LH90) at its auction next Tuesday, October 22.
RIKSBANK: Asset Holdings Tracker – September 2024
Oct-15 14:20
Riksbank asset holdings totalled SEK513bln at the end of September, down from SEK564bln in August. The decline reflected covered bond redemptions of SEK45.1bln and QT sales of SEK5.75bln (SEK4.95bln of nominal SGBs and SEK0.8bln of linkers).
- Active QT sales restarted in September after a summer pause during July and August.
- The next SGB (nominal or linker) redemption is not till May 2025, when the 2.50% May-25 SGB 1058 matures. The Riksbank currently holds SEK44.8bln of this bond.
- The Riksbank is still due to provide an update on what the long-run level of asset holdings should be, which may be accompanied with an update on QT.
- This topic will be addressed “later this year”, according to the September MPR, which may suggest an announcement as late as December.
- For a quick primer and scenario analysis of the Riksbank’s balance sheet, see the following two posts: here and here.
CANADA: TD Securities Don’t Share Market’s Conviction On 50bp Cut
Oct-15 14:19
- TDS: “The downside surprise on headline CPI throws another wild card into the October BoC decision, but we do not share the market's conviction on 50bp cuts even with headline tracking below projections from the July MPR. Core inflation measures have largely performed in line with the BoC's projections, and the stable performance for CPI-trim/median along with some stabilization in core goods should make it easier to look through September.”
- GDP tracking under the BoC forecast still leaves a powerful argument for sustained cutting though and they "expect USDCAD to keep grinding higher to 1.39 which can offer a tactical cap. Further catalysts for USD strength now lie in global data outside the US weakening and in US elections.”
- BMO, CIBC and National have all switched to calling for a 50bp cut next week since today’s CPI report, joining Desjardins and RBC in the process.
