Italian government bonds are not overvalued versus German peers, despite the substantial tightening in the BTP-bund spread during the past few months, says Dresdner Kleinwort strategist Marcel Bross. “In fact, our model renders BTPs on the cheap side versus bunds,” he says, adding that the major drivers of the BTP-bund spread argues for continued tightening. Therefore, Dresdner Kleinwort reiterates its recommendation to stay overweight BTPs at the expense of bunds, Bross says.
Nomura upgrades Lloyds Banking Group (LLOY.LN) to buy from reduce, and lifts target price to 100p from 58p. “As substantially all the highest-risk assets are believed to be included in the asset-protection-scheme, we believe Lloyds’ tangible book value per share has among the least downside
risk of major banks, after the first loss piece is exhausted,” it says. Adds
that with signs that economies and asset values are stabilising, markets are
beginning to discount recovery and a turn in the credit cycle. “While we still
see risks around credit quality, the read-across from US and European banks
indicates some positives,” it says. Shares +3.1% at 80p.
Latvia and the IMF seem to have come to agreement on lending terms to unlock EUR200M from the Fund, notes RBS. Fails still, however,
to understand Latvia’s logic defending its pegged LVL “at all cost,” instead of
taking “a much easier route” and devaluing to a competitive level. Says doing
so will require restructuring some private sector liabilities, but notes that
these liabilities are owed to foreign, mostly Swedish owned banks, which can
“surely look after themselves.” Adds with “much better credit fundamentals than Latvia,” there wouldn’t necessarily be a domino effect on pegged currencies in Estonian and Lithuania if Latvia devalues.