1、 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:/ Growth is slowing against a backdrop of persistently low
2、inflation and structurally elevated levels of debt Central banks are constrained-rate hikes are being aborted and a dovish central bank peloton is forming New Zealand has grabbed the yellow jersey and is the new tte,but others look poised to challenge Debt overhangs return to haunt central banks Pag
3、e 4 Corporate debt in the US and household debt in Australia are but two examples.Inflation undershoots and fears of asset price deflation support the benign outlook for rates and the sway towards easing expectations.Attempting a break away Page 14 As the dovish shift in policy gathers pace,the BoE
4、and RBA are still resisting the trend.We are mildly bullish on both gilts and ACGBs:any attempt to break away from the central bank peloton and consider higher rates should ultimately prove futile.China rates heading lower again Page 23 The 50bp RRR rate cut for small-and medium-sized banks is the c
5、atalyst for yields in China to retrace lower again.Other central banks in the region have also been easing and more look set to follow suit.Credit:prefer carry to duration Page 17 While weak fundamentals and expensive valuations keep us cautious on global IG credit,we do see value in EUR HY.The carr
6、y on offer at the front-end provides a cushion in the event of unexpected shocks.Green bonds delivering economic and social benefits Page 19 As the supply of green bonds continues apace,we estimate that these bonds fund over 100 million tonnes of carbon emission reduction per year.This equates to ar
7、ound USD3bn of economic value,and USD8-10bn of social benefit.Please support HSBC Fixed Income research and vote in the Euromoney Fixed Income Research Survey 2019.For more instructions and survey link,please see Appendix one.Steven Major,CFA Global Head of Fixed Income Research HSBC Bank plc +44 20
8、 7991 5980 9 May 2019 Fixed Income Asset Allocation Fixed Income Rates Cant hike,might cut Fixed Income Rates 9 May 2019 2 Convictions and forecasts 3 Global direction 4 Americas 7 US 7 Canada 8 USD supras&agencies 9 USD Credit 10 Latin America 11 EMEA 12 Eurozone core 12 Eurozone non-core 13 UK 14
9、EUR supras and agencies 16 Covered bonds 16 European Credit 17 CEEMEA 18 Green bonds 19 Asia Pacific 20 Japan 20 Australia 20 New Zealand 21 Asia credit 22 Asia rates 23 Currencies 24 Forecasts 25 Disclosure appendix 28 Disclaimer 31 Contents 3 Fixed Income Rates 9 May 2019 Convictions and forecasts
10、 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 7 May(%)1 month(bp)1 month 3 month Ytd US Treasury BUSY 6.17 2.39-7 0.54 1.70 2.18 Euro core I05760EU 7.77-0.22-3 0.21 0.64 1.87 Euro non-core
11、 LTITTREU 6.75 1.85-3 0.39 3.48 2.03 UK gilt LSG1TRGU 12.25 1.27 5-0.44 0.06 1.95 Japan govt BEPAGA 9.70 0.02 0 0.05 0.41 1.24 Canada govt I05500CA 6.92 1.68-4 0.52 1.79 2.41 Australia govt BEASGA 6.97 1.65-10 0.76 2.54 4.32 Global inflation iBoxx inflation 12.47-0.73 3-0.51 2.11 3.67 Covered iBoxx
12、Covered 4.74 0.27-6 0.32 1.27 1.81 Euro SSA iBoxx Sub-sovereigns 6.71 0.56-2 0.35 1.44 2.23 USD SSA iBoxx Sub-sovereigns 3.76 3.15-4 0.45 1.64 2.42 EM Sovereign EMUSTRUU 7.58 5.92 2 0.11 2.32 6.36 Euro IG iBoxx EUR Corporates 5.10 0.95-14 0.89 2.46 4.23 Euro HY iBoxx EUR High Yield 3.35 3.75-4 0.32
13、3.51 6.18 US IG Bloomberg US Corporates*7.51 3.59-9 1.02 3.17 5.94 US HY Bloomberg US High Yield*3.70 6.20-10 0.64 3.58 8.58 Asia credit iBoxx ADBI 4.92 4.12-5 0.64 3.05 5.05*HSBC FI Research opinion,direction of arrows indicates change of view from previous month Source:Bloomberg,iBoxx,HSBC Notes:B
14、loomberg 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 SSA
15、s 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 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 United States 2.47 2.50 2.35 (-)2.20 (-)2.10 (
16、-)2.10 (-)2.10 (-)Germany-0.03-0.05-0.05 (-)0.05 (-)0.10 (-)0.10 (-)0.10 (-)France 0.34 0.30 0.25 (-)0.35 (-)0.40 (-)0.40 (-)0.40 (-)Italy 2.59 2.45 2.45 (-)2.45 (-)2.40 (-)2.40 (-)2.40 (-)Spain 0.95 0.95 0.95 (-)1.00 (-0.05)1.00 (-0.05)0.95 (-0.05)0.90 (-0.05)United Kingdom 1.15 1.20 1.10 (-)1.00 (
17、-)1.00 (-)1.00 (-)1.00 (-)Japan-0.05 0.00 0.00 (-)-0.05 (-)-0.05 (-)-0.05 (-)-0.05 (-)Canada 1.68 1.70 1.65 (-)1.60 (-)1.50 (-)1.50 (-)1.50 (-)Australia 1.73 1.80 1.80 (-0.10)1.75 (-0.05)1.85 (-)1.85 (-)1.85 (-)Source:Source:HSBC,Bloomberg.Change from last month shown in parentheses.NeutralNeutralMi
18、ldly bullishMildly bullishNeutralNeutralMildly bullishNeutralNeutralMildly bullishMildly bearishNeutralNeutralMildly bullishMildly bearishMildly bearishNeutral Fixed Income Rates 9 May 2019 4 Australia likely to be next Its not often we begin with a discussion on Australia and New Zealand.Last month
19、 we described a peloton of central banks moving towards an easing bias(FIAA:Peloton,10 April 2019):now it seems there could be a new tte.New Zealand(8 May)was the first of the developed market central banks to cut this year and there have been some rate cuts in EM,including India,Argentina and Malay
20、sia.The common denominator behind the aborted rate hikes and return to easing is the excess global debt(US yields&leverage,15 July 2018).Central banks cannot hike rates because of both the fear of asset price deflation and the impact of increased debt servicing costs on future growth expectations.Mo
21、st importantly,this is a global theme with the excess leverage showing up in household,corporate and sovereign sectors.Recent focus has been on Australian households and the US corporate sector.Only a few months ago the RBA was strongly indicating that the next move in rates was going to be upwards,
22、but now credit growth has slowed,the narrative is preparing for a move in the opposite direction.The 7th May post-meeting statement from RBA Governor Lowe identified spare capacity in the economy,quite some contrast from what he said six months earlier:Global direction Lower than anticipated inflati
23、on against a backdrop of excess private sector debt continues to constrain central banks Given that the impact of previous policy tightening is still working through and the effect of QT is so evident in US money markets the benign backdrop to rates markets remains firmly entrenched Steven Major,CFA
24、 Global Head of Fixed Income Research HSBC Bank plc +44 20 7991 5980 Figure 1.Australia in easing mode,forwards lead the way Source:HSBC,Bloomberg Note:Forecast is one year ahead policy rate,quarterly data Excess global debt is a dovish drag on central banks The markets best estimate of the policy r
25、ate has been consistently below the HSBC forecast-130-110-90-70-50-30-10100.51.01.52.02.53.03.54.04.520122013201420152016201720182019Forward minus HSBC fcast(bp)Australia policy rate(%)AUD 1y1m(LHS)Policy rate(LHS)Forward minus HSBC fcast(RHS)5 Fixed Income Rates 9 May 2019 .the probability of an in
26、crease in interest rates is higher than the probability of a decrease.Philip Lowe,Governor of the Reserve Bank of Australia,26 November 2018 Since this speech,emboldened by persistently weak incoming inflation data,market expectations have been moving towards easing.As a result,forward yields sit co
27、mfortably below the policy rate(see Figure 1).The chart shows the 1y1m rate(this is the 12 month ahead,one month OIS rate)and,plotted on the right-hand-side,the difference between this series and the HSBC policy rate forecast,one year hence.Whilst there has been a clear downward trend in the forward
28、 rate,it has rarely been wrong as an indication of the direction for the next move in rates when below the forecast.Official resistance to cutting rates in Australia has been related to fears of a return to excess leverage,especially in the household sector,but this now has to be weighed against doi
29、ng nothing in the face of noticeably lower than expected inflation.BIS data shows a 120%household debt/GDP ratio,compared with an average of 72%in the developed world(Q3 2018).Lower-for-longer policy rates are necessary because the servicing of the extra debt is a drag on future growth,and are a req
30、uirement to soften the blow from asset price deflation.US corporate debt concerns to the fore By contrast,the Feds Financial Stability Report(6th May 2019)identified borrowing by households as being relatively modest relative to incomes and that the largest US banks remain strongly capitalised.The p
31、otential problem according to the FSB,however,is the surge in corporate debt,which is at the highest level for 20 years.Leveraged loans are now USD1.15trn,having risen 20%through the last year.From the Feds perspective this acceleration in the quantity of debt masks something more sinister in its ma
32、ke-up.Vulnerabilities are building in the corporate sector on the back of easier lending standards and strong risk appetite.Defaults on leverage loans have remained low but the main concern is the concentration of debt in the riskiest firms.Figure 2.St Louis Fed Financial Stress Index =median =last
33、Source:HSBC,St Louis Federal Reserve,Bloomberg Note:St Louis Fed Financial Stress Index is released weekly with latest data 26 April 2019 The forward has rarely indicated the wrong policy direction when below the forecast The potential problem in the US is surging corporate debt Vulnerabilities buil
34、ding in the US corporate sector might not be reflected in the stress index today LastLoose52wk rangeTightSt Louis Fed Financial Stress Index-1.34Fed Funds Effective Rate2.40US 2Y Yield2.27US 10Y Yield2.46US 30Y Yield2.88Baa rated corporate3.94Bloomberg US HY6.063m-10Y Treasury0.06Baa/10Y Treasury Sp
35、read147Bloomberg US Corporate3.59Libor/OIS spread17.3US TED spread14.8Commercial Paper/T-Bill spread10JPM EMBI Plus409VIX Index15.4MOVE Index47.8US 10Y break-even1.91S&P 500 Financials Index462 Fixed Income Rates 9 May 2019 6 Detailed balance sheet information of publicly traded nonfinancial firms r
36、eveals that,over the past two years,the firms with the most rapid increases in their debt loads have higher leverage,higher interest expense ratios,and lower cash holdings Financial Stability Report,Board of Governors of the Federal Reserve System,6 May 2019 The relevance of this is how it might fee
37、d into financial conditions,which on the surface remain accommodative.A deterioration in financial conditions is linked to downside risks for economic growth(IMF Global Financial Stability Report,Chapter 3,October 2017).According to the St Louis Fed Stress Index,financial conditions remain relativel
38、y accommodative but this belies the potential for something to change very quickly.Many of the variables included in the index(see Figure 2)appear to measure more or less the same thing and whats more,move in the same direction.Meanwhile there was a surprising development in the Senior Loan Officer
39、Opinion Survey on Bank Lending Practices.In the April 2019 report(6 May 2019)banks reported weaker demand for commercial and industrial loans to large and middle-market firms.Reporting on exposure to Asia and Europe was more benign,so this would be a terrible time for the economy outside the US to t
40、ake a turn for the worse.Shift in the inflation narrative Combining the discussion on household and corporate debt above,with the shift in the domestic narrative on US inflation(see FIAA:Peloton,10 April 2019),the global backdrop for rates remains extremely benign.Given that monetary policy works wi
41、th a lag,the significant tightening of last year is still working its way through.We say significant because of both the level of real yields achieved against the backdrop of leverage and the impact of the balance sheet run off.The rate move may work with a lag but the quantitative tightening is ong
42、oing and is still having an impact.Libor-OIS spreads,the Feds technical cut in the IOER rate and front-end curve inversion have all been symptoms of what now looks like excessive tightening.The persistent inflation undershoot(see Figure 3)will be the focus of a system review conference at the Chicag
43、o Fed,4-5 June 2019.However,it may face a difficult communications problem:its true inflation target for the 2000s may have been 1.5%,(Shapiro and Wilson,FRB San Francisco,February 2019).The Fed must now convince investors that it means 2%when it says 2%.This would require a more dovish policy outlo
44、ok,even if inflation were above target.Softening US demand for commercial and industrial loans to larger firms in April Fed looks to have tightened excessively,in our view The Fed is focussed on addressing the persistent inflation undershoot Figure 3.US inflation-11%of observations on or above targe
45、t since 2012 Source:HSBC,US Commerce Department 0.00.51.01.52.020122013201420152016201720182019%US PCE CYOY Index 7 Fixed Income Rates 9 May 2019 US Misunderstood messaging We continue to expect a narrow yield range in the coming months(US Rates:Lowering the ceiling for yields,25 April 2019).It will
46、 take time for the data to justify a shift in the Feds outlook.So,we expect a 10-year yield range of 2.4-2.6%and a two-year range of 2.2-2.4%.The volatility around the FOMC meeting highlights the importance of a disciplined range view.The bond markets moves around the May FOMC meeting reflected the
47、mixed messages heard by investors and a lack of conviction on the rate outlook,in our view.The Fed did not intend to signal any change versus the bond markets initial conditions.That said,the two-year notes yield had an unusually large 10bp yield range,falling to 2.21%after the IOER was cut,then jum
48、ping to 2.31%during the press conference.In our view,cutting the IOER reflected the Feds focus on idiosyncratic conditions in the small(USD 70bn)funds market:it was not a dovish hint.In turn,Federal Reserve Chairman Powells press conference views were consistent with the FOMCs March economic project
49、ions and rate outlook and the FOMCs statement.The Fed is unlikely to take a proactive dovish turn,given its current outlook and historical behaviour.While Vice-Chair Richard Clarida has pointed to the“insurance”rate cuts in 1995 and 1998,these were not proactive moves.The Feds 1995 cuts followed Mex
50、icos Tequila crisis and the Orange County default.10-year US Treasury yields fell by 200bp from their peak Americas The US credit rally is slowing as the impact of the Fed dissipates,while non-financial corporates remain vulnerable to a slowdown We expect a tight range to persist in USTs:it will tak
