ECB will continue asset purchases

What’s on our mind

- General credit market news

• The long-awaited ECB announcement on Thursday took most of the focus last week. Despite a large QE programme being expected, the ECB positively surprised the market, announcing an open-ended programme of monthly purchases of EUR60bn. Very importantly, the ECB will continue asset purchases until it sees an improvement in the outlook for inflation.

• The larger-than-expected QE programme gave further fuel to the already tight credit markets, with the European IG index, iTraxx main, tightening 6bp week on week and the HY index, iTraxx crossover, tightening some 27bp week on week.

• However, that was last week’s news. This week has started off on totally different ground with the Greek election. The anti-austerity party Syriza got 149 out of 300 seats in the parliament and has repeated its claim of a write down of the nation’s debt and an end to austerity. Unsurprisingly, EU leaders and the IMF’s Christine Lagarde have already refused any special treatment for Greece but we still expect this to draw some market intention over the coming period.

Buy SEB AT1 CALL 2020 – sell Nordea AT1 CALL 2024

• Although Nordea (AA-/NO,Aa3/NO, AA-/S) is the large stand most diversified Nordic bank, which has earned it a one-notch higher rating than, fo rexample, SEB (A+/NO, A1/NO,A+/PO), we think the diversification could be a disadvantage over the coming  period.

• We are increasingly worried about the negative spill overfrom the oil price plunge on the Norwegian economy, which in tandem with a contracting Finnish economy and the Russian geopolitical situation could end up hitting Nordea from several sides. In this perspective, SEB is a more pure play on Sweden, the most stable Nordic country at present.

• In our view, the main risk factoris missed coupon payments should one or both banks come under financial distress.

• We have an ‘Overweight’ rating on SEB and an ‘Underweight’ on Nordea and do not believe a14bp pickup for a four-year maturity extension is worthwhile.

Credit overview SEB AT1 and Nordea AT1

• We recommend buying SEB AT1 2020 and selling Nordea AT1 2024, as the Nordea AT1gives only a 14bp pickup for four-year maturity extension.

Buy Securitas 2021 – sell Securitas 2017

• Securitas is rated BBB/Stable outlook by S&P. Despite this,the Securitas 2021 bond trades wider than the BBB- curve ,while the Securitas2017 bond trades at the BBB+curve. We recommend buying the Securitas 2021 versus the Securitas 2017. Pickup 57bp(Z-spread) for four-year maturity extension.

• The Stable outlook reflects S&P’s view that Securitas will continue to benefit from robust free operating cash flow as a result of limited capex. At thesame time, S&P believes the ton going cost savings will help maintain operating margins attheir current levels.

• In our view, a risk factor for the2021 bond could be increased M&A spending, aiming to in crease Securitas’s high-tech security solution exposure.However, Securitas has stated several times that it is committed to a ‘solid investment grade rating’.

• We have an overall Marketweight recommendation on Securitas.

Credit overview of Securitas bonds

• We recommend buying Securitas 2021 and selling Securitas 2017 – 57bp pickup for four-year maturity extension.