Reuters Insider - Market Pulse: Greek debt comeback? Not convinced – RBC

Mr Bricolage SA

26/04/2014 17:33

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        Greece is eyeing a return to debt markets, but    
                     it’s still the poorest credit in Europe and that’s 
                     unlikely to change soon, says RBC Capital Markets 
                     Head of European Rate Strategy Peter Schaffrik.   
 
 
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Transcript (May be auto-generated)

 Spanish yields back at pre-crisis lows and now Greece says it plans to return to
international debt markets. But is peripheral debt starting to look dangerously 
overbought? Joining me, RBC Capital Markets Head of European Rate Strategy, 
Peter Schaffrik. Hi there, Peter. Hi there, Axel. What do you think? I mean, is 
there anyone out there who thinks these things are looking dangerously 
overbought now? Well there might be a few but I mean I think if we look at the -
we have to look at the picture as a whole. I mean its bund yields are very low. 
I mean it's not only bund yields, Treasury yields, gilt yields, they're all very
low. And if you look at real yields even, so if you subtract from expected 
inflation, they're even very close to zero or negative. So in that environment, 
if you want to go for some sort of yield, you almost have to go out the credit 
spectrum. It's not only peripheral sovereign debt which is tightening in, it's 
corporate debt, it's bank debt, it's pretty much the whole spectrum. So when 
you're looking general of these pick up assets, how do you pick and choose when 
you look at the periphery? Which ones do you like right now? Well we certainly 
still like Spain. We have been liking Spain for quite some time and as I said, 
it's not only the sovereigns. So we do like the sovereigns certainly but we also
like the banks. We think there's – particularly the senior debt, we think 
there's more tightening to come. But in general, everything that has a pickup at
the moment in the sovereign space still looks attractive really. Yeah. You say 
the banks. Do you mean across the border or are you talking Spanish banks? No, 
we like Spanish banks in particular. Okay, alright. Greece talking about coming 
back to the market of course as well. One, do you like Greece? Two, do you like 
the Greek banks or when will you start liking the Greek banks, do you think? And
do you think – I know Moody's is talking about an upgrade. Do you think Greece
deserves it right now? Well it probably does a small one because there are 
various shades of grey, but we have to keep in mind that in the whole peripheral
spectrum, Greece is still by far the poorest credit out there and it's not going
to change very dramatically over the next coming years. That being said, it is 
also still the highest yielding asset so there is clearly no traction and 
against everything I said just a second ago, these spreads will probably come in
as well. Yeah. But I'm still not a big fan of this particular credit to be fair.
I mean we're looking at what, about I think it was just up at 6.13 there or 
something on the 10-year Greece. I mean can you foresee this or can you see a 
time when this gets down to say, 3, 3.5 over the next 12 months? Well 3.5 is 
probably a bit aggressive. We got to keep that in mind, but certainly I mean if 
the economy improves further and if the public finances improve further, and if 
all the other peripherals keep rallying, then certainly this would come down, 
not to 3.5, I would certainly hold my ground there but probably lower than 6. 
Okay. And do you touch their banks? Well we have to see yields or what comes out
of the stress tests so I wouldn't want to go out on a limb here. I want to 
finish up with France. 

The new Finance Minister, I believe, Sapin has ask for more time or they're 
going to ask for more time to meet the deficit targets, at least they want a 
review of the deadlines. Do you think it's warranted, do you think they'll get 
there? Well I mean there are precedents, there are clearly precedents and the 
European Commission has granted extended deadlines before. And I think it would 
be quite difficult to argue that in the case of France, this should not be 
granted. So in my opinion, it's more likely to go through than not. 

But frankly, turning back to the debt market, is the debt market really going to
worry about this? Maybe the opposite. Maybe they're going to appreciate it a bit
because one of the notions is that probably the straitjacket that the EU has put
on is a bit too harsh and it should be loosened to begin with. Great. Peter, 
thanks for talking with us. Peter Schaffrik, RBC. Now a deal in the making in 
the world of DIY today. Kingfisher, shares up over 2% on reports it's in 
exclusive talks to buy France's Mr. Bricolage. The Kingfisher bid valuing the 
target at EUR15 a share or close to $400 million overall. The deal not expected 
to complete though until early 2015. That is it for now. You can catch Market 
Pulse at noon every day, every weekday. I'm Axel Threlfall, this is Reuters