New Issue


Issuer: Pitney Bowes Inc.(ticker: PBI)

Expected Ratings: Baa2 / BBB (Stable /Stable)

Security: Senior Notes

Size: $150mm (6mm $25 par securities)

Price Guidance: 6.75% area

Maturity: March __, 2043

Interest Payment: Quarterly on March, June,

September, and December beginning 6/__/13.

Fixed for life Optional Redemption: March XX, 2018 at par; prior to that, there will be a make whole call

Denominations: $25 Par

Use of Proceeds: To purchase a portion of the company’s outstanding debt securities including the 4.875% notes due 2014, the 5% notes due 2015, and the 4.75% notes due 2016 and to pay related costs and expenses. Any remainder of net proceeds will be used for GCP. (See Red) QDI/DRD: NO Change of Control: 101% (See Red)

Expected Listing: NYSE

Settlement: T+7

Brazil: Is the BCB on a tightening path?

Market Update

Brazil: Is the BCB on a tightening path?

Having moved lower from 2.05 in December to 1.96 at the time of writing, the BRL remains the best performing major EM currency year-to-date, with a spot return of 4.7% to the USD and a total return of 5.5%. The main moves took place around the beginning of the month, and were driven by two factors.

Firstly, the government eased pressure on the BRL, reducing their verbal commitment to an ultra-weak currency and giving the market scope for building USD/BRL net short positions. Secondly, but not less importantly, the BCB has appeared more complacent towards BRL appreciation, until the double intervention in February, with the Bank selling reverse FX swap contracts when the pair hit the 1.95 mark.

Compared to Q4’12, the novelty resides in the fact that the BCB has returned to an almost neutral position in the FX swap market, signalling a change of stance towards BRL appreciation and apparently setting the boundaries of the new trading range at 1.95-2.00 for now. As the pair continues to hover just above the lower-end of this band, appreciation potential could be exhausted soon. While the BCB may only be trying to smooth moves, regardless of their direction, the government has reiterated that they won’t allow the BRL to rally indefinitely, consolidating our belief that USD/BRL is unlikely to rally much further for now.

In this respect, however, the underlying assumptions remain crucial. The market has been speculating that CPI is rising too fast and authorities will need either the support of a stronger BRL to stem imported inflation, or tighter rates, which would eventually translate into a stronger BRL. The BCB have not officially changed their position on future rates, but started communicating their readiness to ‘adjust monetary policy if needed.’ This is a visible change in communication style that is pushing an increasing number of investors to believe that the Copom is dropping the ‘low rates for long’ policy and prepare to deliver a measured number of Selic hikes. The government has reinforced these expectations by providing statements that the BCB can autonomously decide whether to hike interest rates. Comments came from both Finance Minister Mantega, and President Rousseff, who instructed her economic team to make it clear that the BCB has total autonomy to increase rates, according to local newspaper Folha. For more details see Brazil Headlines in the box.

In conclusion, USD/BRL continues to be supported by hawkish market expectations, but we see greater chances that the pair will stabilize and correct going forward. In the meantime, the DI market has sold off heavily on increasing expectations that rate hikes are imminent. DI futures imply +50bp in 3m, +106bp in 6m and +175bp in 12m. This is a sharp adjustment compared to +25bp and +87bp implied in 6m and 12m, respectively, on February 4. We are under the impression that the adjustment is overstretched as macroeconomic assumptions have not changed substantially over the past few weeks. Therefore, we would expect a correction lower, even if the BCB decided to hike the Selic, as monetary tightening priced in now is too aggressive in our opinion and the BCB is unlikely to normalize rates that quickly. The change in expectations has also helped the PRE DI curve flatten faster than we had envisaged. 2Y/5Y now stand at around 76bp from 90bp on January 19, and vs. our 12m forecast of 40bp. In any case, we think the BCB will not pursue monetary tightening and a strong BRL at the same time. The use of one lever should exclude the other, as long as the rebound in economic activity isn’t consolidating. We continue to expect the Selic rate at 7.25% until Q2 2014 (with risks of earlier resumption of tightening, but not as early/strongly as the market currently implies), while our USD/BRL forecasts remain set at 2.02 in Q1, 2.00 in Q3 and 2.01 in Q4, but we do recognize higher BRL appreciation risks.

Cristian Maggio I Senior Emerging Markets Strategist

Beware ‘Credit Supernova’ Looming Ahead : Gross

“Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic,” Gross said in his February newsletter.

“When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets,” he added.

Gross advocates investors turn to gold and other commodities for inflation protection and currencies and assets in other countries that don’t have such active central banks and huge debt loads. He favors Australia, Brazil, Canada and Mexico.

We would add Norway too!

CHINESE CPI creeps higher via food prices

Chinese CPI creeps higher via food prices, but watch housing ..

Chinese data flow this week (trade yesterday and CPI today) speaks to us that policy changes are not required in the near term as the economy appears to have finished 2012 on a firm footing.  This is in contrast with the Xinhua news headline spotted earlier this week claiming that a RRR cut was on the cards soon.  We expect the PBoC to sit tight for some time as we await the priorities and policies for 2013 and beyond from the newly installed Xi and Li government.

The market’s attention should swing to next Friday’s Q4 GDP.  Leading indicators of activity such as the PMIs suggested that Dec qtr GDP could re-accelerate from 7.4% to around 7.8%/yr, which is the consensus view (range 7.4% to 8.6%) and yesterday’s trade data hints that net exports could add to GDP after being a consistent drag since late 2011.  An outcome close to consensus generates a 2012 calendar average GDP growth of 7.8%, down from 9.3% in 2011 and above the unofficial target of 7½%.

At the time of writing the 2013 GDP target is yet to be announced.  Speculation is that the 7½% target will be repeated, however, we lean towards repeating and confirming the original 12th 5-Year Plan target of 7% (which we suspect has been forgotten by consensus).  A target of 7% dovetails with the new administration’s so far unspecified goals of “more sustainable growth”.  While it is also easier to over-achieve, early signs are that this is no longer the goal of the Chinese government.

Data detail – inflation

Inflation in December popped higher from 2.0% to 2.5%/yr (mkt 2.3%), the highest since May.

Food price inflation was the upside culprit, rising to 4.2%/yr after 3.0% in November via a 10.3%/yr pop in vegetable prices and a sharp turnaround in pork prices from -11.5%/yr to -6.2%/yr

Non-food price inflation remained static at 1.7%/yr, similar to the pace of the last four months. However, we note the creep higher of house price inflation, which since 2009 appears to be a leading indicator of overall inflation. One to watch, but we conclude that there’s no need to lower interest rates on today’s report.

PPI inflation improved modestly from -2.2%/yr to -1.9% (mkt -1.8%) with all three sub-components appearing to be past the trough (producer goods, manufactured goods and consumer goods.

Annette Beacher

TD Securities


Budget Surplus on Track, but Bond Supply Increases

New Zealand Budget update – more bonds ahead 

Budget updates in late December rarely garner a lot of attention, and with the commitment to achieve budget surplus by 2014/15 more or less intact despite the challenging revenue environment, there is little new news here. In fact more attention was required to digest the confusing NZDMO press release (attached).

The government estimates that it will continue to narrow the fiscal deficit this year to -$NZ7.3b (-3.4% of GDP) a $NZ600m improvement since May due to lower expenditure (due to lower inflation and interest rates). The widest fiscal deficit post global financial crisis was -$NZ18b (or -9.2% of GDP) two years ago.

The headlines attempted to fuss about the smaller expected surplus for

2014/15 (near-flat as a % of GDP compared with +0.1%) but in reality this is insignificant-the commitment to surplus and near-term peak in net debt are what matters for the ratings agencies.

Net debt is expected to peak at 29.5% of GDP in 2014/15, below the self-imposed 30% upper limit. The decline is more gradual compared with May, but is consistent with maintaining a relatively high credit rating.

The fiscal impact of the delay in asset sales is assumed to be minimal, even with the timing of the first sale closer to March-June 2013 than the May assumption of late 2012.

Economic projections: steady as she goes

Economic growth is forecast to increase by 2.3% and 2.9% in the years ending March 2013 and 2014 respectively, the same as TD. Rather, Treasury’s out year projections have been shaved down from 3% to 2.4%, abandoning all hope of achieving above-trend growth over the medium term.

Treasury assumes “Monetary policy support for the economy is forecast to continue for some time” but as “activity accelerates and inflation pressures pick up, interest rates are expected to rise gradually”. The exchange rate is expected to be a “drag on growth over much of the forecast period”. Nothing contentious here.

Borrowing requirements: less now, more later

The NZDMO announced an upgrade in 2012/13 issuance from $NZ13.5b to $NZ14b, but within that time-frame is the lofty $NZ11.27b April 2013 maturity, so there is actually minimal net new issuance for the year.

While global investors are seeking yield amongst a sea of zero interest rates, it would be prudent in our view to issue a little more in the near-term to pre-fund future requirements.

Further ahead, expected issuance has been increased in the out years

(chart) with 2014/15 lifted to $NZ10b and FY2016 and FY2017 at $NZ7b each. Who knows where yields will be in 2016/17?

The NZDMO introduced unnecessary complexity into its straightforward funding task. There has been a shift in tender scheduling, where the new inflation-index bond (Sept 2025) will be issued on the first Thursday of each month, where no nominal bonds will be issued. Nominal bonds will only be issued in subsequent weekly tenders. A specific schedule will be released shortly, but the focus on “25% less nominal issuance” could be seen as supportive for pricing in the near term.

The NZDMO intends to launch a new mid-curve nominal 2020 bond in “the near future”, where we suspect this maturity will be front-loaded as part of the funding task for the April 2013. In calendar 2012, with only one tender left on Thursday, total issuance will be $NZ14.7b, including the $NZ2.65b Sept 2025 linker issued by syndicate. Calendar

2011 was the peak in issuance at $NZ19b.

Ratings agencies: tick of approval

In an interview after the HYEFO, Moody’s analyst Steven Hess claimed the agency is comfortable with New Zealand’s Aaa/stable rating. S&P and Fitch rate New Zealand at AA/stable. All agencies would be comfortable with net debt peaking within the published time-frame.

Annette Beacher

Head of Asia-Pacific Research  FX and Rates Strategy TD Securities

Bond Alert

*Not QDI or DRD Eligible*


Aflac Incorporated

Aflac, Inc. is a general business holding company. The Company, through its subsidiaries, provides supplemental insurance to individuals in the United States and Japan.  Aflac’s products include accident/disability plans, cancer expense plans, short-term disability plans, sickness and hospital indemnity plans, hospital intensive care plans, and fixed-benefit dental plans.
Equity Symbol “AFL”
10MM shares
Baa1/BBB  (Stable/Negative)
$25 Par, Cumulative Preferred Subordinated Debentures

Maturity:  9/15/52
Non-Callable for 5 years
NYSE Listing

Not QDI or DRD Eligible

Expected Settle T+5

Price Talk: ~5.50% area

This is for informational purposes only; from sources the Firm believes reliable; may not be accurate or complete; is subject to change;  is not a recommendation or offer to buy/sell a financial instrument or adopt any investment strategy; is not legal, tax, credit or accounting advice.   Additional risks may exist that are not referenced. Past performance is not indicative of future returns. Other than CDs or CDARS, financial instruments: are not FDIC insured; are not deposits or other obligations of and are not guaranteed by the Firm or any bank or non-bank affiliate; and involve investment risk including possible loss of principal. 

Bond Alert

AVWM, LLC., is pleased to announce the following new issue municipal bond alert.


Although the accuracy of the above information and statistics are not guaranteed, they have been obtained from reliable sources and are believed to be accurate.  Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.  AVWM,LLC. are not providing the information contained in this alert based on any client’s particular financial situation or needs.  Tax-exempt bonds are not necessarily a suitable investment for all persons. Consult your tax advisor regarding your particular situation.  For more information on the terms of this pending offering or to obtain a copy of the preliminary official statement, please call 407-250-2588, between 8:30 a.m. to 5:00 p.m.  EST, Monday through Friday.  This is not an offer to sell or a solicitation of an offer to buy the securities described above. This issue is subject to vailability, initial pricing, and later price change.  AVWM, LLC. displays only the best bids and offers supplied by its participants for each instrument. It does not represent the entire market or a consolidated market view and better prices for a particular security may be available through other sources.  Parties may not rely solely on the use of AVWM, LLC. to satisfy their duty to obtain best execution.  As of September 19, 2012; Amount, terms and yields are subject to change.