1、CORPORATE&INSTITUTIONAL BANKING February 2019 BNPP Monthly Credit Call This Credit Cycle has Longer to Run Viktor Hjort Global Head:Credit Strategy Carlo Mareels Senior Analyst:European Banks Timothy Rea Senior Analyst:European Autos VIKTOR HJORT,CARLO MAREELS,TIMOTHY REA CREDIT STRATEGY AND TRADING
2、 DESK ANALYSTS THIS IS MARKETING MATERIAL FROM THE CREDIT STRATEGY&TRADING DESK ANALYST TEAM AND IS NOT RESEARCH 每日免费获取报告1、每日微信群内分享7+最新重磅报告；2、每日分享当日华尔街日报、金融时报；3、每周分享经济学人4、行研报告均为公开版，权利归原作者所有，起点财经仅分发做内部学习。扫一扫二维码关注公号回复：研究报告加入“起点财经”微信群。Credit Strategy:This Cycle has Further to Run 2 European Credit Outl
3、ook:Room to Run 3 Base case:growth will remain weak and idiosyncratic risk high,but this Credit Cycle has longer to run and the next couple of quarters will be a mini-2016.Valuations already capture an ECB taper tantrum,global central banks are increasingly dovish,corporates likely to be defensive a
4、nd political risk is not increasing.Source:Bloomberg,BNP Paribas Spread represents the Bloomberg Barclays Euro Aggregate Index.Viktor Hjort,Pierre-Yves Bretonniere,Paola Lamedica BNP Paribas London Branch Bear case:Europe in Recession(+60bp)Base case:Dont Fight the Fed(-25bp)Bull case:Triple Boost(-
5、50bp)6080100120140160180200220240260Jun-12May-14Apr-16Mar-18BB*EuroAgg Corporate index(OAS)European IG Credit:Spread Forecast(1yr ahead)Dont Fight the Fed:Data-dependent Fed/ECB/PBOC+conservative corporates.GDP:1.0%,HICP:1.4%,default rate:2.5%+soft Brexit+TLTRO3.Global trade deal substantially reduc
6、es macro uncertainty,setting the stage for a growth rebound.Europe in recession(GDP:0%,CPI:0%,default rate 5%)=trades at historical average US BBB recession levels.(*)Bloomberg Barclays Euro Aggregate Index.The Anatomy of a Typical Credit Cycle:It looks like this 4 Credit is a cyclical asset class w
7、ith pay-offs that vary substantially,both in absolute terms and relative to other asset classes,depending on where in the cycle we are.A Credit Cycle ends when the economy overheats,balance sheets are overleveraged and credit conditions and policy are too tight.We estimate the Credit Cycle as follow
8、s(the BNP Paribas Credit Cycle index):(1)Leverage:how stretched are balance sheets and is the trend deteriorating or improving,(2)Credit conditions:how easy or difficult is credit availability,(3)Risk appetite among borrowers:how high/low are animal spirits,(4)Policy stance:is monetary policy easy o
9、r restrictive,(5)the Growth cycle:is the output gap positive or negative.Source:Bloomberg,BNP Paribas Viktor Hjort,Pierre-Yves Bretonniere,Paola Lamedica Recovery Equities Credit Rates Fast growth Slow growth Risk appetite low Risk appetite high Credit Cycle Equities Rates Credit Expansion Repair Cr
10、edit Rates Equities Rates Credit Equities Downturn US Repair US Credit 5.9%Equity-2.1%Rates 2.0%Recovery US Credit 0.6%Equity 10.0%Rates-1.7%Expansion US Credit-1.7%Equity 1.1%Rates-2.9%Downturn US Credit-11.0%Equity-25.5%Rates 10.8%EU Typical returns vs.historical long-term average when the BNPP Cr
11、edit Cycle indicator indicates Repair Typical returns vs.long-term historical average when the BNPP Credit Cycle indicator indicates Recovery Typical returns vs.historical long-term average when the BNPP Credit Cycle indicator indicates Downturn Typical returns vs.historical long-term average when t
12、he BNPP Credit Cycle indicator indicates Expansion Note:Equity:SPX;Credit:BB US High Yield;Rates:UST index.Data since 1995.BNP Paribas London Branch The Fed,the PBOC and now also the ECB all have a data-dependent policy stance and are recognising the downside risks that Credit markets were discounti
13、ng at the end of 2018.This means the market has a put-option in the event of weaker growth.None of the central banks have officially abandoned their bullish long-term outlook for growth yet.That makes Credit a safe carry trade with moderate upside.Its not just Credit investors and central bankers th
14、at turned cautious on the global market,corporates have too.The US Conference Boards survey of US CEOs showed broad-based pessimism with risk of a global recession as the top concern.Cautious corporates are the other ingredient required for a Credit Cycle extension and we expect that the near term p
15、eak is in for aggressive releveraging.Dovish Central Banks+Cautious Corporates=Longer Cycle 5 Central banks:from hawkish to dovish CB Balance sheet reduction likely ends in 2019 The peak is in for M&A,Share buybacks for now Source:Central bank data,BNP Paribas Source:Bloomberg,BNP Paribas Source:Blo
16、omberg,BNP Paribas Note:US:2y TIPS-implied real rate,EU;2y inflation-swap implied real rate;China:3m Shibor less PPI.Viktor Hjort,Paola Lamedica BNP Paribas London Branch -2-10123Nov-15Apr-16Sep-16Feb-17Jul-17Dec-17May-18Oct-18Mar-1Short-end real-rates(implied).USEURChinaPolicy easing Policy easing-
17、500-400-300-200-1000100200300400-1.0-0.50.00.51.01.52.02.5Dec-10Jan-12Feb-13Mar-14Apr-15May-16Jun-17Jul-18Aug-19Sep-20G4 Central bank bond purchases(YoY)(12mth chg)FedECBBOJBOEPBOCUS HY spread 12m chg(invrs)QE QT Wider credit-4-202012345Dec-00Aug-03Apr-06Dec-08Aug-11Apr-14Dec-16 Releveraging risk=su
18、m of M&A+Share buyback volumes($tn)Re-leveraging risk(12m lag)Cost:Equity-Cost:DebtRising re-leveraging risk Cheap cost of debt Expensive cost of debt US rates:the Fed is Pausing at Lower Rates than in the Past 6 Rates vs.GDP:230bp below where they used to hurt US:The Yield curve 20bp above where it
19、 used to hurt Source:BNP Paribas,Bloomberg US:Real rates:200bp from where they used to hurt#FedPause at unusually low rates.The Fed is pausing at rates far from where they normally do damage.For instance,adjusted for nominal GDP growth the Fed Funds rate is 230bp below where Credit bear markets typi
20、cally start,while the real Fed Funds rate is 200bp below.The yield curve is the only indicator so far in the danger zone.Fed-pause increases the chance of a soft-landing.In the most recent cycles(1995,2006)the Fed paused two-and one-years respectively before the onset of a Credit bear market and fiv
21、e-and two-years before the onset of a recession.This time the cycle has run longer but rates are lower.Source:BNP Paribas,Bloomberg Source:BNP Paribas,BEA Viktor Hjort,Pierre-Yves Bretonniere,Paola Lamedica 0100200300400(4)(2)-2 4 6 8Feb-83Feb-89Feb-95Feb-01Feb-07Feb-13The Fed vs.the Credit market:R
22、eal rate RecessionReal rate(Fed funds)US(BBB)Spreads0200400-1.01.03.0Feb-83Feb-89Feb-95Feb-01Feb-07Feb-13The Fed vs.the Credit market:Yield curve RecessionUSTYldCurve 2s10s-inverseCredit spreads(BBB)Flatter yld curve 50 150 250 350-6.00-4.00-2.000.002.004.00Nov-87Feb-94May-00Aug-06Nov-12Rates(Fed Fu
23、nds)-GDP(nom)Credit spreads(BBB)Credit bear markets start here BNP Paribas London Branch Credit conditions:they may not Tighten as much as Feared 7 but C.Banks may now stop draining the tub in 2019 Credit is the most QE/QT-sensitive asset class Source:BNP Paribas,Central Bank Data.Note:BNPP Credit C
24、onditions index estimated using Bank system liquidity indicators,lending standards,High Yield market access for CCC borrowers.Credit conditions have been tightening Credit conditions may stop tightening this year as the Fed ends its balance sheet shrinkage,the ECB is done with tapering and the PBOC
25、grows again.How does quantitative tightening impact Credit?(1)The portfolio impact:a large,predictable buyer goes away/turns seller.(2)The fundamental impact:tighter credit conditions.The process:Banking system liquidity indicators deteriorate=loan officer surveys tighter,High Yield Capital market a
26、ccess lower=lower growth.Credit is the most QE/QT sensitive asset class because(1)unlike rates,the portfolio and fundamental impact have the same sign,and(2)unlike Equities,there the portfolio impact is immediate.Source:BNP Paribas Note:BNPP Credit Conditions index estimated using bank system liquid
27、ity indicators,lending standards,High Yield market access for CCC borrowers Source:Bloomberg,BNP Paribas Viktor Hjort,Pierre-Yves Bretonniere,Paola Lamedica BNP Paribas London Branch-1.000.001.002.003.00Dec-10Feb-12Apr-13Jun-14Aug-15Oct-16Dec-17Risk premiums:Govt bonds,equities,credit Bonds:UST term
28、premiumEquities:ERPCredit:SpreadsCentral banks reduce purchases-1.0-0.50.00.51.0-1.0-0.50.00.51.0Jun-00Jun-03Jun-06Jun-09Jun-12Jun-15Jun-18Credit Conditions index(US,EU)EUUSEasy credit Tight credit 0.00.20.40.60.81.0-10123Dec-10Nov-11Oct-12Sep-13Aug-14Jul-15Jun-16May-17Apr-18Mar-19G5 C.bank bond pur
29、chases(12mth chg)vs.BNPP CrCond index FedECBBOJBOEPBOCCredit ConditionsQE QT Tighter credit conditions Cyclicals need clarity on trade and Brexit 8 The Market is worried about a downturn Synchronised slowdown Source:BNP Paribas,ECB and Cyclical earnings are under pressure There is a lot of cyclical
30、downside priced in by now.In fact,the Cyclical Credit risk premium is as high as in 2015,the most recent global slowdown.There are a few similarities:central bank tightening,lower Oil price,weakness in China.Banks,however,are fundamentally stronger today than then.Earnings growth is robust in Europe
31、 but uneven.Energy and Non-Cyclical sectors(Utilities,Health Care)account for the growth while Cyclicals are in a slump.Its still too early to buy Cyclical risk aggressively,e.g.Autos or Retailers.The catalyst for these sectors will be a Soft-Brexit outcome and Trade deals:US/Europe and US/China.Sou
32、rce:BNP Paribas Source:Markit,BNP Paribas Viktor Hjort,Pierre-Yves Bretonniere,Paola Lamedica -30-20-1001020Sep-13Sep-14Sep-15Sep-16Sep-17Sep-18Cyclical Credit Risk Premium:EU Cyclical vs.Non-Cyclicals Low cyclical risk premium High cyclical risk premium-10%0%10%20%30%Dec-07Sep-10Jun-13Mar-16EBITDA
33、growth YoY CyclicalsNon-CyclicalsEuro Corporats-allCyclical slump BNP Paribas London Branch 4550556065Feb-16Aug-16Feb-17Aug-17Feb-18Aug-18PMIs GlobalChinaUSEMU Forecasts and Sector Recommendations 9 We forecast positive returns and likely better than the consensus expects.H1 19 should be a mini-2016
34、 with returns supported by dovish policy,moderate Non-Financials corporate supply and still-negative sentiment and positioning.Allocation:favour long-duration IG Credit(5yr)and defensive high beta such as Hybrids,Bank capital.Cyclicals are cheap but not out of the woods yet.*Bloomberg Barclays Euro
35、Aggregate Index.*Bloomberg Barclays Pan-European High Yield Index.(1)Forecast 2018.*Supply estimate based on bottom-up approach.Source:BNP Paribas Viktor Hjort,Pierre-Yves Bretonniere,Paola Lamedica BNP Paribas forecasts 2019F 2018 Credit spread and excess return IG spreads(bp)*120bp(-20bp)+66bp IG
36、excess returns 2.3%-3.1%HY spreads(bp)*395bp(-36bp)+223bp HY excess returns 4.1%-4.1%HY default rate 2.5%1.9%net supply(IG)205bn 195bn net supply(HY*)50bn 63.5bn Growth and inflation Eurozone GDP(1)1.0%1.8%Eurozone HICP(1)1.4%1.7%FX and rates EURUSD FX(1)1.25 1.14 ECB depo rate-0.40-0.40 2y Bund yie
37、ld-0.50-0.60 10y Bund yield 0.40 0.25 BNP Paribas sector recommendations for 2019 IG Non-Financials Autos Metals&Mining=Energy Real Estate Retail and Consumer /=TMT Utilities Corporate Hybrids Financials=Senior Financials Lower T2=AT1 HY Retail Food Energy Packaging=Construction Chemicals Source all
38、 charts:BNP Paribas BNP Paribas London Branch European Bank AT1s:Extension Risk Limited 10 14 AT1s coming up for call in 2019;SANTAN has material extension risk as it needs to refinance the March 2019 call AT1.Current refi conditions are unfavourable;we believe that currently a 7%coupon would be nec
39、essary,putting the 6.25%too far out of the money for a call.The bank announced that it would look to issue 1.5bn in hybrids this year.If they manage to do this,they may well call only one of the two AT1s coming up for first call in 2019.A non-call of at least one of the SANTANs is already priced in
40、to a good extent.We would expect the price to drop a few points upon any evidence that it will not be called but not to less than 94 cents for the 6.25%and then bounce back.The broader impact on the AT1 market from a non-call by Santander should be muted,in our view.There is already an expectation o
41、f a non-call on at least one of the SANTAN AT1s.Peripheral AT1 with low coupons and low back ends are more vulnerable to a price drop but this should be limited to one or two points maximum.These include,RBIAV 4.5%,CABKSM 5.25%,DB 6%,UCGIM 5.785%and perhaps Santan 5.25%,ISPIM 6.25%We view a no deal
42、hard Brexit as a key potential extension driver particularly for the UK AT1s but this is still remote BACR is the bank with the largest notional coming up for redemption in 2019,at eq.4.7bn(c.4.23bn);the current excess AT1 outstanding is 4.5bn.Lloyds has a significant excess of AT1 as well.2019 AT1
43、calls,extension risk limited 11 Source:Markit,Bloomberg,BNP Paribas SECURITY_NAMEPx_lastflt_spreadYAS_ZspreadBack end-z spreadissue_dtNxt Call Dtcall_featureyld_YTC_MIDyld_ytm_midChange Year To Date Net(Realtime)crncyBBVASM 7 PERP100.179616-6768219/02/201419/02/2019Anytime1.911.910.25EURSANTAN 6 1/4
44、 PERP97.9055412439-189812/03/201412/03/2019Quarterly27.525.692.70EURKBCBB 5 5/8 PERP100.603476-6353919/03/201419/03/2019Quarterly0.330.330.79EURSANTAN 6 3/8 PERP98.5479908-42919/05/201419/05/2019Quarterly11.777.502.99USDNWIDE 6 7/8 PERP100.96248824324511/03/201420/06/20195 years4.186.110.01GBPLLOYDS
45、 7 PERP100.4650639111501/04/201427/06/20195 years5.786.320.51GBPVIRGMN 7 7/8 PERP101.10557935822131/07/201431/07/2019Quarterly5.547.022.03GBPBACR 6 1/2 PERP100.96958844614117/06/201415/09/20195 years4.875.993.32EURBACR 6 5/8 PERP99.67650238311917/06/201415/09/20195 years7.177.632.11USDBACR 7 PERP99.
46、96508545-3617/06/201415/09/20195 years7.106.392.04GBPNDASS 5 1/2 PERP99.7323562688823/09/201423/09/2019Semi-Annual5.936.141.40USDACAFP 6 5/8 PERP100.1247031615418/09/201423/09/20195 years6.427.282.53USDCOVBS 6 3/8 PERP101.32441129311826/06/201401/11/20195 years4.505.362.25GBPCarlo Mareels BNP Pariba
47、s London Branch European Autos:The Beginning of the End 12 Automotive Suppliers 13 Global Light Vehicle sales and production trends Production disruption expected to continue this year Global Light Vehicle sales fell 0.5%y-o-y in 2018 Marking the end of an unprecedented 8 year run of growth We expec
48、t Global Light Vehicle sales to fall again in 2019 due to More challenging economic backdrop Trade tensions/tariffs Brexit WLTP Rising vehicle costs China weakness Strong correlation between Light Vehicle sales and production However,the impact on suppliers can be amplified in a downturn due to:Inve
49、ntory cuts Content cuts(OEMs and customers)OEM pricing pressure The spate of supplier warnings last year illustrated this point and acted as a stark reminder of:Their particular sensitivity to volumes How misleading order books can be H1 19 looks most susceptible to production disruptions Chinese in
50、ventory levels remain elevated Europe impacted by WLTP fallout and Brexit uncertainty US expected down in Q119(but a relative outperformer in H1)On this basis we would expect Suppliers to remain under even greater pressure than the OEMs in upcoming quarters Source:LMC,Continental,IMF,BNP Paribas Sou
