BofAML: La búsQEda de bonos corporativos (The European Credit Strategist)

Redacción - Viernes, 03 de Julio

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The European Credit Strategist: The QEst for corporates • The ECB today added some corporate bonds to the list of eligible agency securities.
•   While we think the move is symbolic rather than a big policy shift, the news is bullish for corporate bonds. • The news favours core corporates over peripheral corporates and state owned utilities. We like long Main vs short XO.

A happy tailwind as "Greferendum" time approaches 

As the world nervously awaits Sunday's Greece vote, the ECB has provided some joy for credit investors today. By including a number of corporate bonds as eligible agency securities for QE purchases, the central bank has fuelled a big rally in utility and peripheral bonds. While we think the move is more symbolic from the ECB, rather than the start of fully-fledged corporate bond QE, the move is nonetheless bullish for high-grade spreads. The credit market now has a new, big, price-insensitive buyer in town.  

What's the news?  

The ECB added 6 non-financial issuers in BofAML's ER00 index to its list of eligible agency bonds today. They are Ferrovie, Terna, Enel, Snam, Alta Velocidad and SNCF. While the Italian utilities may be household names in the credit market, they nonetheless have characteristics of agency debt, such as a large government share ownership. We think this has been a decisive factor in their addition to the eligible securities list, even if the notion of government control is less clear for some. 

Who's next? 

For credit investors the read-across is quite big in our view. We find that many non-financials have (majority) government share ownership in Europe (Table 2). These over time could be subject to inclusion as eligible QE securities. In particular, the theme is bullish for the utility, telecom and auto sectors.  

What's the trade? 

Based on government ownership numbers, we see today's news as more bullish for core corporate bonds than peripheral corporates (a trade we have been expressing for a while). We also see it as more bullish for high-grade over high-yield, given that buying will be restricted to high-grade bonds. We think the way to trade this is to be long risk in Main vs. short risk in Crossover.  

Bullish state-owned utilities 

We believe today's news is a highly positive technical for the utilities space where state-ownership levels remain high. Going forward, we think a number of state-owned utilities in Europe could either benefit or have spreads outperform on expectations of bond purchases. We expect bonds of EDF, GDF, Fortum and TenneT will outperform.  

Bull case for Enel intact, resuming coverage of Snam 

We re-iterate our Overweight-70% recommendation on Enel's hybrids, senior bonds and 5y CDS. We expect Enel's senior spreads to continue to perform on today's news. Enel's hybrids, while unlikely to be purchased via QE, should still tighten as senior spreads rally, and we expect Enel's hybrids to be upgraded to IG at Moody's and S&P. We resume coverage of Snam's bonds at OW-70%. We expect Snam to maintain its existing BBB/Baa1 ratings. 

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