La rally du crédit peut-il encore se poursuivre ?

Les marchés du crédit sont boostés par les commentaires de la Banque du Japon, laquelle a officialisé la volonté de doubler sa base monétaire d’ici 2 ans – soit des achats de 60 milliards de dollars par mois au niveau mondial. Cela a provoqué un rebond des marchés du crédit, notamment en Europe. Mais à en croire les experts de Citi, il serait prudent de ne pas extrapoler le rebond actuel …

[cleeng_content id= »273537347″ description= »Plus d\’analyses et de commentaires à découvrir…  » price= »0.19″ t= »article » referral= »0.05″] »Credit seems to have been playing catch-up to other markets this week. Yet we are not sure the obvious interpretation of recent events is the right one.
At first sight, the story is very straightforward. With Kuroda pledging to double Japan’s monetary base in two years, markets just gained an extra $60bn/month in global demand. All else equal, that should drive prices up, right? And as previously, the effects are liable to spread far beyond the immediate market where the central bank is doing the buying, both through the direct displacement of investor flows elsewhere (as everyone seems to be anticipating from the Japanese) and through an effect on risk appetite.
Dig a bit deeper, though, and we remain very dubious about the wisdom of extrapolating a continued rally.
First, the much talked-about flows from Japan have yet to really materialize; indeed, MoF data show the Japanese were actually net sellers of foreign securities last week.
Second, while the Japanese have been big buyers of French government bonds, and our rates strategists see plenty of scope for this to continue, we see no evidence to suggest that they either have been or will pour money into Italy and Spain. This makes the outperformance of both markets (and associated catch-up in credit) quite hard to explain.
Third, the rates markets themselves seem in the past couple of days to have become dubious about the original premise for the whole move, namely that BoJ buying drives Japanese yields down to such low yields that investors have no choice but to move elsewhere. After an initial rally, JGB yields are now firmly higher than they were pre-announcement.
Fourth, while an extra $60bn/month in liquidity from the BoJ is indeed significant, this needs to be put in its global context. The Fed Minutes were surprisingly hawkish, with not just “a few” but “many” participants thinking that an improved job outlook might justify tapering QE from its current $85bn/month “at some point over the next several meetings”. The ECB, meanwhile, has quietly been draining liquidity by more than €75bn/month thanks to LTRO repayments. Net provision in recent months has actually been negative.
So where does all this leave us? In much the same place as before, frankly: increasingly concerned by steadily deteriorating credit metrics, increasingly concerned at the consequently widening gap between fundamentals and
valuations, especially in the periphery, increasingly concerned about the unattractive risk-reward in € credit (and indeed fixed income), suspicious of the widespread pricing in of central bank omnipotence – and yet without an obvious catalyst as to when the markets might correct. Indeed, a Portuguese and Irish loan maturity extension would for now send a signal which was outright positive.
How frustrating you find such an environment probably depends on how much flexibility your mandate affords you. There seems to have been a resurgence of interest in tranches and options of late, both as hedges and as sources of yield, and we certainly like the convexity profile they (or our other derivatives favourite, 3s5s flatteners) provide. In cash, the only real equivalent is barbells (financials in particular – covered and T1 vs sen and LT2). Perhaps increased usage of derivatives might be one small benefit of the otherwise deeply destructive Financial Transaction Tax proposal. As markets become increasingly distorted, it is not just central banks who need to be exploring the limits of their mandates; we think investors should be, too. »[/cleeng_content]

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