汇丰银行-全球-投资策略-全球固定收益资产配置策略-2019.2.12-32页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Bank plc View HSBC Global Research at:https:/ Global liquidity,in particular the Feds balance sheet,will be the big focus in the coming months and because this decision is required before we can have clarity on the direction of rates .we remain neutral duration in all the major government bond markets and cautious on credit The disconnect between credit and rates Page 4 Like water gaining momentum as it goes down a plughole,QT may have an exponential impact.Credit markets do not appear to agree and have decided there is more liquidity coming.Meanwhile rates markets suggest it is too early to say.At best,there might be an end to the US QT ahead of what may previously have been expected.At worst,the credit markets may have got it completely wrong.Duration call steadfastly at neutral Page 7 Its boring on the surface,but we are coming at this from the context of being bullish rates for a long time.Until we have a better idea what the Fed is doing with its balance sheet,and hence clarity on the direction of rates,it is premature to return to a bullish duration stance.This said,the recent moves have prompted us to reduce our end-2019 Bund yield forecast to 20bp,from 50bp previously.Finding value in front-end linkers and Euro spread products Page 8 While we are keeping outright duration exposure low,depressed valuations in short-dated US and Euro linkers present an attractive opportunity to add inflation exposure.Meanwhile,we turn more constructive on EUR SSAs and covered bonds which should benefit from a resurgence of the hunt for yield amid receding supply pressure.Still cautious on credit and USD SSAs Page 15 We are not convinced that the recent rally in credit can continue and so we stick with our mildly bearish bias on USD and EUR IG.It may be difficult to pinpoint the catalyst to halt the rally,but there are numerous candidates.We are also going against the grain in USD SSAs:the positive supply outlook is already in the price.ESG is coming to the fore in 2019 Page 17 We have created a model,using environmental,social and governance measures to score 77 sovereigns.Somewhat counterintuitively,we find that DM countries CDS spreads are more impacted by ESG factors than EM.Steven Major,CFA Global Head of Fixed Income Research HSBC Bank plc +44 20 7991 5980 12 February 2019 Fixed Income Asset Allocation FIXED INCOME GLOBAL Down the plughole FIXED INCOME GLOBAL 12 February 2019 2 Convictions and forecasts 3 Global direction 4 Americas 7 US 7 Canada 8 USD supras&agencies 8 USD Credit 9 Latin America 10 EMEA 11 Eurozone core 11 Eurozone non-core 12 UK 13 EUR supras and agencies 14 Covered bonds 14 European Credit 15 CEEMEA 16 Green bonds 17 Asia Pacific 19 Japan 19 Australia 20 New Zealand 21 Asia credit 21 Asia rates 22 Currencies 24 Forecasts 25 Disclosure appendix 28 Disclaimer 31 Contents 3 FIXED INCOME GLOBAL 12 February 2019 Convictions and forecasts Table 1.The HSBC Conviction Snapshot:our views on the fixed income asset classes for the coming month Conviction*Index Yield Returns(%)1 month Name Duration 8 Feb(%)1 month(bp)1 month 3 month Ytd US Treasury BUSY 6.09 2.56-10 0.65 3.99 0.60 Euro core I05760EU 7.76-0.16-9 0.92 2.37 1.22 Euro non-core LTITTREU 6.59 2.26 17-0.74 2.97-1.40 UK gilt LSG1TRGU 12.15 1.23-11 1.98 3.88 1.89 Japan govt BEPAGA 9.62 0.03-5 0.67 2.10 0.82 Canada govt I05500CA 6.70 1.87-10 0.48 3.83 0.61 Australia govt BEASGA 6.72 1.95-22 1.59 4.97 1.74 Global inflation iBoxx inflation 12.15-0.54-6 0.78 1.55 1.56 Covered iBoxx Covered 4.65 0.49-14 0.74 1.01 0.57 Euro SSA iBoxx Sub-sovereigns 6.53 0.69-16 1.17 1.64 0.94 USD SSA iBoxx Sub-sovereigns 3.69 3.34-14 0.77 2.88 0.83 EM Sovereign EMUSTRUU 7.40 6.05-32 2.33 4.91 3.96 Euro IG iBoxx EUR Corporates 5.07 1.34-37 2.14 1.29 1.73 Euro HY iBoxx EUR High Yield 3.71 4.58-46 2.21-0.66 2.38 US IG Bloomberg US Corporate*7.39 3.89-28 2.30 3.80 2.56 US HY Bloomberg US High Yield*4.03 6.89-31 2.34 1.12 4.93 Asia credit iBoxx ADBI 4.87 4.45-26 1.73 4.34 2.13*HSBC FI Research opinion,direction of arrows indicates change of view from previous month Source:Bloomberg,iBoxx,HSBC Notes:Bloomberg indices are used,except for inflation,covered bonds and SSAs,which use iBoxx.Germany is used as a proxy for the Eurozone core(I05760EU)and Italy for the periphery(LTITTREU).Indices are local currency except for inflation and EM which are US dollar based.Euro corporates,covered bonds and SSAs are euro-denominated.*Bloomberg Barclays US Corporate/High Yield.Bloomberg indices are used throughout,with the exception of global inflation,covered bonds and SSAs,Table 2.Forecast summary:10Y yields(%)country current+1m Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 United States 2.65 2.70 2.80 (-)2.80 (-)2.65 (-)2.50 (-)2.50 (-)Germany 0.11 0.05 0.05 (-0.20)0.10 (-0.30)0.20 (-0.25)0.20 (-0.30)0.20 (-0.30)France 0.56 0.50 0.50 (-0.25)0.50 (-0.30)0.60 (-0.25)0.55 (-0.30)0.55 (-0.25)Italy 2.95 2.75 2.65 (-0.15)2.60 (-0.15)2.45 (-0.25)2.20 (-0.30)2.20 (-0.30)Spain 1.23 1.20 1.20 (-0.25)1.25 (-0.30)1.30 (-0.25)1.20 (-0.30)1.20 (-0.30)United Kingdom 1.18 1.20 1.20 (-)1.20 (-)1.30 (-)1.40 (-)1.40 (-)Japan-0.03 0.00 0.05 (-0.05)0.05 (-0.05)0.00 (-0.05)0.00 (-0.05)0.00 (-0.05)Canada 1.88 2.00 2.15 (-)2.30 (-)2.35 (-)2.40 (-)2.40 (-)Australia 2.06 2.20 2.25 (-0.15)2.30 (-0.05)2.30 (-0.05)2.30 (-)2.30 (-)Source:HSBC,Bloomberg.Change from last month shown in parentheses.NeutralNeutralNeutralNeutralNeutralNeutralNeutralNeutralNeutralMildly bullishMildly bearishNeutralMildly bearishNeutralMildly bearishMildly bearishNeutral FIXED INCOME GLOBAL 12 February 2019 4 Credit and rates saying different things The disconnect in the behaviour of credit and rates markets,evident in their divergent paths so far in 2019,is worth closer inspection.A large proportion of the Q4 2018 credit sell-off has been reversed in the first six weeks of 2019,whilst US Treasury yields have continued to fall(see Figure 1).The apparent risk-on behaviour in the credit markets has not resulted in higher US yields.This is because this disconnect is more about the somewhat spurious concept of liquidity.Whilst we can observe market expectations for policy rates at various forward points it is more difficult to do the same with the Feds balance sheet,especially as the impact has been global.Indeed,Fed officials have been guarded in their commentary about the appropriate size of the balance sheet and the timing of possible changes to a policy that had previously appeared to be on autopilot.This decision is needed before we can be convinced about the direction of rates.Global direction Our neutral duration view on rates comes following a period of disconnect with the credit markets We are concerned that the markets conviction about a more accommodating Fed may have got ahead of itself and would wait for news on global liquidity measures,particularly the Feds balance sheet Steven Major,CFA Global Head of Fixed Income Research HSBC Bank plc +44 20 7991 5980 The strong performance of credit this year is at odds with the rates market The balance sheet decision is a key focus for the coming months Figure 1.Disconnect between Treasuries and High Yield credit Source:HSBC,Bloomberg The level of reserves that are going to be needed in our new floor system is probably going to be quite a bit higher than what many would have thought even one or two years ago.A lot of numbers have been kicked around on Wall Street.I dont want to name a number here because I am not sure where the committee will come down Federal Reserve Bank of St Louis President James Bullard,8 February,2019 3003504004505005502.42.52.62.72.82.93.03.13.23.3Jan 18Mar 18May 18Jun 18Aug 18Oct 18Dec 18Feb 19HY OAS(bp)Yield(%)USD HY(RHS)2.64422Powell:long way from neutralPowell:just below neutralPowell pause hints10Y USTUS mid-term electionsInverse VIX sell-off 5 FIXED INCOME GLOBAL 12 February 2019 Down the plughole Assuming we can understand how it works when liquidity is added,through QE and repo operations,how can we be sure about what happens when it is withdrawn?Our previous attempts to track the global liquidity impulse signalled vulnerability for risky asset markets in Q3 2018(see Reversal,31 August 2018).The hypothesis back then was that the aggregate slowdown in the global central bank balance sheets growth would lead the S&P 500 lower(see Figure 2).We now wonder whether the assumptions of this approach were too conservative.Further reflection suggests QE cannot be treated in the same way as balance sheet expansion through repo facilities(eg the widely expected ECB TLTRO)and one regions unconventional policy may have a greater multiplier effect than anothers.The efficacy of unconventional monetary policy,including QE and negative rates,has been the subject of much debate over the last decade.Most will agree that valuations of risky assets including equities,real estate,credit and EM were boosted the most by years of accommodation,so it would follow that they should be the most vulnerable to a reversal.In our opinion Quantitative Tightening(QT)cannot have a linear impact.The second and forthcoming USD500bn reduction will likely have a larger marginal impact than the first.We know from the QE experience that there was a very big signalling effect.The announcement of QE had the largest impact on government bond prices and this subsequently faded as programmes became established.In terms of other asset classes,the portfolio rebalancing channel worked through the lowering of the term structure,which encouraged risk-seeking behaviour into assets with more yield;credit,equities,real estate and EM.Bernankes rule of thumb for QE2 in 2011 was probably not meant to be interpreted as a linear relationship.He said that in terms of the broad impact on a range of asset prices,USD600bn of QE was roughly equivalent to 75bp of reduction on the policy rate.No rule of thumb is offered for QT but we would posit that it may have an exponential effect.USD500bn of US QT is worth multiples of the liquidity expansion offered by other central banks.Such calculations cannot be precise because they are about sentiment and confidence.As the Fed shrinks its balance sheet we can only estimate how much further it has to go.Recent Fed speeches have alluded to the decision being close(Bullard,8 February 2019),with the focus very much on the liability side of the balance sheet and the level to which excess reserves can shrink.Figure 2.Annualised returns and CB balance sheet growth Source:HSBC,ECB,Federal Bank of St Louis,Bloomberg *Note:Non-US CB balance sheets converted using fixed median USD FX rate from 2007-present,monthly data Withdrawal of liquidity might have an exponentially large impact as the second USD500bn could have more impact than the first A decision on the balance sheet appears close-41-10-505101520253011121314151617181920Growth(%,YoY)S&P 500 returnTotal assets of Fed,ECB,BoJ,PBoCProjections FIXED INCOME GLOBAL 12 February 2019 6 We should not underestimate the importance of this decision,given that any decision to cut rates would necessarily require QT to end.In our opinion the rates markets have been relatively efficient in pricing-in each QE event.We have seen already that the riskier asset markets have reacted far less benignly.Duration mainly at neutral Our portfolio is quite long of“dont know”(i.e.we are neutral on duration across several markets and sectors(Page 3).G3 bond yields have fallen rapidly towards and sometimes through our forecast levels,which means we can be neither bullish nor bearish.Without higher conviction about the next move from central banks,who themselves appear confused,we would prefer to wait for a better opportunity to re-enter long duration trades.10-year Bunds now yield less than 10bp,having declined 12bp since the last publication of this monthly(FIAA:All of a sudden,15 January 2019).At that time,we lowered our core Eurozone conviction to neutral,from mildly bullish because of this move.Economic data has validated the pricing-out of tightening expectations evident in the rapid decline of Eonia forward yields.Softer hard data,such as German industrial production and Italys growth numbers confirming a return to recession,merely repeat what survey data such as the PMIs,Ifo and ZEW have been suggesting for some time.Increased conviction in low for longer policies in Europe and Japan contributes to the downward pressure on G3 bond yields(see Figure 3).The wide differential between US and Eurozone short rates is the key factor here and we can see from the chart the tight trading range between Treasury yields and hedged Bunds/JGBs.On the same theme,in the last month the BoJ cut its inflation outlook and 10-year JGB yields went back below zero.China has continued to ease policy through liquidity injections.India cut rates when,according to most expectations,they were supposed to be tightening.Then there is the Fed.Having contributed to a global tightening of financial conditions through a number of measures last year higher rates,government policies,regulations and the rejuvenation of cash as an asset class the US authorities are reaping what has been sown.In a global context the IOER looks too high and,as discussed above,the timing for the end of the balance sheet unwind will be key for risky asset markets.We are neutral for most rates markets having been bullish for a long time German Bunds and JGBs are tugging global yields lower Figure 3.Hedged G3 10Y rates tend to move in sync Source:HSBC,Bloomberg Note:hedging uses 3mth EURUSD and JPYUSD xccy basis swaps 3.172.642.940.51.01.52.02.53.03.54.02010201120122013201420152016201720182019Yield(%)10Y UST10Y DBR hedged to USD10Y JGB hedged to USD 7 FIXED INCOME GLOBAL 12 February 2019 US Historical US curve inversions support a front-end steepening bias Based on previous periods when the front-end of the Eurodollar futures curve was inverted,we think risk-reward currently favours a steepening bias.By looking back,we have tried to gain an insight into the conditions that could lead to further inversion or,alternatively,a steepening of the front-end of the yield curve.The spread between the 4th and 8th Eurodollar futures was inverted 7%of the time over the last 30 years.Figure 4 shows there were six different episodes,including the current one.We also show the spread between the 2nd and 6th contracts to measure the nearer-term market expectations of the Fed outlook.The shortest inversion between the 4th and 8th contracts lasted for one week(during the Long-Term Capital Management liquidity crisis in 1998).Figure 4.We seem to be nearing the limit of front-end inversion Source:Bloomberg,HSBC Note:weekly data for rolling contract expirations The longest period of inversion lasted for 20 months.In that period,the Fed continued to tighten after the initia