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Dolmen weekly market commentary

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Dolmen weekly market commentary

  1. 1. 20th Sept 2010 Market Commentary Government Bonds: Bonds yield movements were mixed last week. Key Points last week In the US investor fears of a double dip recession subsided somewhat • Irish bonds yields and CDS reach news highs. following recent positive data.-importantly yields are still below key • EU Financials perform well after Basel III announcement reversal levels. In Europe, peripheral bond yields traded aggressively • Japan intervenes to weaken the Yen. higher particularly in Ireland and Portugal ahead of this week’s Govern- Economic Comment: After a more positive start to the week ment bond issuance. We expect a period of consolidation in core bond equity markets gave up their gains and German bonds reversed markets with yields trading in an established range in the coming their losses with investors once again moving their money to weeks. safest assets. Having approached the 2.5% levels the 10-year Corporate Bonds: Credit markets were positive in the wider Euro- German bond recovered to finish almost 10bps lower as the week zone after news from the Basel III meeting that the banks would have drew to a close. Meanwhile Japanese authorities engaged in more time to incorporate stricter new rules regarding capital ratios. currency depreciation activities by supplying excess Yen when Following this news many investors began to speculate that certain buying up US dollars in order to help domestic exporters. This in securities, specifically perpetual debt, would be called leading to a turn is a negative for European exporters. The fact that we see considerably price appreciation. In Ireland as the Sovereign underper- continued issuance by high grade corporate is encouraging how- formed ahead of the auction this week we saw CDS levels touch news ever we await more issuance by lower rated companies and more highs. of a skew to Euro denominated issuance. Corporate & Government Bonds ! ! # !! "$ & # # % ' # ( ) # # * +- , * . ) /# # $# $ / ) 01/ 2 ( ) 3 4 5 6 & # 5 7 6 # 5 6 7 2 5 6 0 8 9 2 2 : !; ! 1 <: - $ 4 ) *! *! 89 : 3 -' !; * ! 1 <: * = / -+ ! ! 8 9 # !; ! 1 <: 3 ! ! & : ": '. < !; ! <: ) >+ - ! ! < < & 3 !; ! 1 <: --+ *! *! 3 9 # -#) &# ,- 2 4 4 9 # : #$ # 5 7 ? 6 % " & # 4 % @ @ *! !; (# A !; 1 >/ @ @ *! !; (# A !; 1 # # % > *@ @ *! !; (# A !; 1 # + ,- %#/ @ @ *! !; (# A !; 1 " <' !3 @ @ ! !; (# A !; 2$ # @ @ *! ** !; ( # $ !; 92 ) @ @ ! !; (# A !; 89 $ - @ @ *!* !; (# A !; $ " 0 @ @ ! !; (# A !; B :" @ @ ! !; (# A !; B ) ) @ @ ! !; (# A !; # #% > @ @ * ! !; (# A !; B * 4% 0 0 ) # # /0 C% # #$ $ /# ! > ( #1 ) ) 2 )0 > ! > ! 4 # % . <: & !; * !; !; !; & !; !; !; !; & !; !; !; !; & !; !; !; 3@ & 3@ !; !; !; *
  2. 2. Market Movers Credit Spreads across Ratings by Sector Government Bond Yield Curves ! ; ! ; !"#$ % & #' ( ! ; )* + ! ; ! ; ! ; ! ; ! ; ! ; ! ; B B B 10Y (# > ## # 4 # Ireland is trading considerably cheaper than the core Credit spreads in percentage points across credit ratings for nations at present along with other peripherals. each sector. CDS Trends 10 Year Bund Technical View CDS TRENDS 800 CS EES 600 D L VL Inv GD 400 Sub Inv GD Snr Fin 200 0 01-Apr-2010 01-Jul-2010 01-Oct-2010 Daily Levels 400 CS EES D LVL 300 IRE PRT SP 200 ITA 100 Jun Jul Aug Daily Levels Sep Oct Our longer term view for lower yields remains in tact. How- ever we expect yields to consolidate into a trading range Credit indices improved after Basel however pe- between 2.10% and 2.5% in the short term. Our bias is to ripherals remained under pressure during the week trade this range from the sell side. Only a sustained trade meaning that costs of protecting against default above 2.5% will change our longer term bearish outlook. increased. 10 Year $ Treasury Technical View 10Year $ Treasury Technical View Us 10 yrs traded in a relatively tight range last week as the mar- In the short term we expect the period of consolidation to ket is consolidating between 2.50% on the downside and 2.90% continue. We still favour trading yields from the sell side on the upside. Within this range we favour trading yield from the but favour selling rallies while yields are below 3.20%. A sell side. A move above 2.90% would alter our short term bearish move above resistance at 3.20% will force us to alter our outlook. bear bias.
  3. 3. Bond of the week Heidelberg 7.5% 2014 20th Sept 2010 Issuer Heidelberg Cement • HEI Net debt in 2010 is 7.8bn Rating B1/BB- Risk High • Net debt to EBITDA is at 4.16 times Currency Euro • Cash-flow for this year is 1.1bn, so the cash Maturity Oct 31st 2014 generation of the company is good. Callable N/a Collateral Company Guarantee • Very high level of leverage in the company mainly due to the purchase of Hanson in 2007. Coupon 7.5% • As a credit, exposure to emerging markets makes this a strong pick by Coupon Type Fixed many market analysts. It currently has 25 buy recommendations and Coupon dates Annually, April 30th 2 sell on Bloomberg Issue size 1 billion • The bond itself has performed very well over the past few months re- turning over 6% in price terms since the beginning of June. Price (1) 107.0 • Management have indicated that they are aiming to restore the previ- Yield to call Not applicable ously held ‘Investment Grade’ status on debt have are reducing lever- GRY (2) 5.6% age levels. As such we feel that there is more upside in these Heidel- berg Bonds. • 5-Year yield on the HEI bond is 5.6%. Its credit rating is B1 with a positive outlook. This is below investment grade. • HEI is aiming to regain its investment grade rating in the next year and current opinions by rating agencies have been positive about this company’s ability to achieve this. • The group also has greater exposure to Asia and Australasia compared to CRH and this is a positive. US exposure is lower than CRH' at 30%. s (1) This is the clean price, excluding accrued interest. The value of fixed rate bonds increase as interest rates fall. (2) GRY—Gross Redemption Yield; Yield to maturity assuming all interest payments are reinvested at the same rate 75 St. Stephen’s Green, Dublin 2, Ireland. Tel : +353 1 633 3800. Fax : +353 1 662 3737/677 7044. email : info@dsl.ie, web : www.dolmenstockbrokers.ie LIMERICK: Theatre Court, Lower Mallow Street, Limerick. Tel: 061 436500. CORK: Dolmen House, 45 South Mall, Cork. Tel: 021 422 2122. Dolmen Securities is a Member Firm of the London Stock Exchange and is regulated by the Financial Regulator. Dolmen Stockbrokers is a Member Firm of the Irish Stock Exchange, the London Stock Exchange, and is regulated by the Financial Regulator.
  4. 4. Corporate Interest Rate Comment 8th December 2008 20th September 2010 1 2 1 2 3 6 9 1 3 5 overnight Week Week Month Month Month Month Month Year Year Year Graphs AIB 0.57 0.63 0.67 0.75 0.93 1.20 1.35 1.50 EUR 3mth Interest Rates '06 - '10 EUR Futures Anglo 2.00 2.50 3.00 3.10 3.15 3.35 4.15 4.50 7% GBP GBP Futures Bank of Ireland* 1.00 1.70 2.50 2.45 2.50 2.06 6% USD USD Futures Bank of Scotland 0.37 0.67 0.70 0.85 0.98 1.40 1.65 1.79 1.92 2.43 2.87 5% EBS 2.00 2.10 2.50 2.90 3.00 3.15 3.25 3.88 4.30 4% Investec 1.50** 3.00 3.00 3.00 3.00 3% Irish Life & Permanent 1.00 1.50 1.75 2.25 2.50 2.75 3.00 3.00 3.25 3.25 4.00 2% Irish Nationwide 1.00 1.75 2.00 2.40 2.60 3.00 3.00 3.15 3.30 1% National Irish Bank* 1.11 1.21 1.37 1.64 1.79 1.92 2.55 0% 06 7 08 9 10 06 08 0.40 0.52 0.76 0.84 1.01 1.33 1.48 1.61 1.68 2.12 -0 -0 n- p- n- p- n- Zurich ay ay Ja Ja Ja Se Se M M *Rates are based on 365 day basis. All others are based on 360 day basis **One month notice account EUR 3mth Interest Rates '99 - '10 EUR Futures GBP Comment 8% 7% GBP Futures USD USD Futures Deposit rates in general continue to attract very little movement either positive or negative, with the exception of Bank of Ireland who have increase their 3 / 6 / 9 & 12 month rates considerably from 1% / 1.3% / 1.6% / 1.8% to 2.5% / 2.45% / 2.5% / 2.06%. Although these rates see significant improvement over 6% normal Bank of Ireland’s rates, they are still not attracting the higher levels of other deposit takers. IL&P maintain their recently increased rates but Anglo and 5% Irish Nationwide continue to top the table between them out to 12 months. EBS are coming to the end of their step up account trench which closes on 20th September. The rate on this account increases progressively at quarterly intervals and offers a blended rate of 3.01% with access every three months. 4% Longer term rates have seen an improvement and both EBS and Anglo have increased their offering. Anglo again top the table in this category with a three year rate of 4.15% and a five year rate of 4.50%. 3% 2% Disclaimer: The above rates refer to corporate deposit rates and may vary depending on the level of deposit placed with the various institutions. The above table is intended as a guide and private clients should be aware that there are specific rates available through the institutions for non corporate funds. 1% These rates will be based on the amount and term of the deposit and should be discussed directly with the relevant institution. If you wish to discuss this or any other liquidity / deposit needs please contact Daragh Cullinan on 01 633 3695 / daragh.cullinan@dsl.ie. 0% 0 2 4 6 8 9 99 1 01 3 03 5 05 7 07 9 09 11 l -0 l -0 l -0 l -0 l -0 -9 -0 -0 -0 -0 -0 v- v- v- v- v- v- 20 ar ar ar ar ar ar Ju Ju Ju Ju Ju No No No No No No 2/ M M M M M M /1 19 75 St. Stephen’s Green, Dublin 2, Ireland. Tel: +353 1 633 3800. Fax: +353 1 633 3856 / 633 3857. email: info@dsl.ie, web: www.dolmenstockbrokers.ie LIMERICK: Theatre Court, Lower Mallow Street, Limerick. Tel: 061 436500. CORK: Dolmen House, 45 South Mall, Cork. Tel: 021 422 2122. Dolmen Securities Limited is a Member Firm of the London Stock Exchange. Dolmen Securities Limited is regulated by the Financial Regulator.
  5. 5. Disclosures: This report has been prepared by Dolmen Stockbrokers (‘Dolmen’) for information purposes only to assist investors to make their own investment decisions and is not intended to and does not constitute personal recommendations nor provide the sole basis for any evaluation of the securities discussed. Specifically the information contained in this report should not be taken as an offer or solicitation of investment advice or, encourage the purchase or sale of any particular security, bond, option, future or other derivative investment. Not all recommendations are necessarily suitable for all investors and Dolmen recommend that specific advice should always be sought prior to investment, based on the particular circumstances of the investor. Although the information in this report has been obtained from sources, which Dolmen believes to be reliable and all reasonable efforts are made to present accurate information Dolmen give no warranty or guarantee as to, and do not accept re- sponsibility for, the correctness, completeness, timeliness or accuracy of the information provided or its transmission. Nor shall Dolmen, or any of its employees, directors or agents, be liable to for any losses, damages, costs, claims, demands or expenses of any kind whatsoever, whether direct or indirect, suffered or incurred in consequence of any use of, or reliance upon, the information. Any person acting on the information contained in this report does so entirely at his or her own risk. All estimates, views and opinions included in this report constitute Dolmen’s judgment as of the date of the report but may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein. Unless specifically indicated to the contrary this report has not been disclosed to the covered issuers(s) in advance of publication. Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. The income you get from this investment may go down as well as up. This investment may be affected by changes in cur- rency exchange rates. Figures quoted are estimates only, they are not a reliable guide to the future performance of the investment. Investors should be aware that forwarding looking statements and forecasts may not be realised. This report may not be reproduced (in whole or in part) altered, transmitted or made available to any other person without the prior written permission of Dolmen. Dolmen Securities Limited is regulated by the Financial Regulator. Dolmen Securities Limited is a member firm of the London Stock Exchange. Dolmen Stockbrokers is regulated by the Financial Regulator. Dolmen Stockbrokers Limited is a member firm of the Irish Stock Exchange and the London Stock Exchange. Conflicts of Interest & Share Ownership Policy Dolmen, its employees, directors or related companies, may have a shareholding in the securities (or related investments/ derivatives) of certain companies covered in this report, or may provide/ solicit investment banking or other services to/ from them. It is noted that research analysts' compensation is impacted upon by overall firm profitability and accordingly may be affected to some extent by revenues arising other Dolmen business units including Corporate Finance, Fund Management and Stockbroking. Revenues in these business units may derive in part from the recommendations or views in this report. Notwithstanding, Dolmen is satisfied that the objectivity of views and recommendations contained in this report has not been compromised. Dolmen permits research analysts to own shares and/ or derivative positions in issuers they publish research, views and recommendations on and accordingly analysts involved in the production of this report may own stocks in a company covered in it. Any own account staff trading is undertaken in strict compliance with Dolmen’s own account internal rules and therefore Dolmen is satisfied that the impartiality of research, views and recommendations remains assured. Analyst Certification Each research analyst responsible for the content of this report, in whole or in part, certifies that: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. David Dunk is responsible for the production of this report. For US Persons Only This report is only provided in the US to major institutional investors as defined by s. 15 a-6 of the Securities Exchange Act, 1934 as amended. A US recipient of this report shall not distribute or provide this report or any part thereof to any other person. 75 St. Stephen’s Green, Dublin 2, Ireland. Tel : +353 1 633 3800. Fax : +353 1 662 3737/677 7044. email : info@dsl.ie, web : www.dolmenstockbrokers.ie LIMERICK: Theatre Court, Lower Mallow Street, Limerick. Tel: 061 436500. CORK: Dolmen House, 45 South Mall, Cork. Tel: 021 422 2122. Dolmen Securities Limited is a Member Firm of the London Stock Exchange. Dolmen Securities Limited is regulated by the Financial Regulator.Dolmen Stockbrokers is a Member Firm of The Irish Stock Exchange and The London Stock Exchange. Dolmen Stockbrokers is regulated by the Financial Regulator.

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