Daily Musings and Music of a Euromarket Professional

Uncomfortable as it may be, being aware of sitting on a time bomb shouldn't keep us from being able to laugh about it - and to listen to some music!

Daily musings of a euromarket professional

Saturday 25 February 2012

01 February 2012 – “ Maybe Tomorrow ” (Stereophonics, 2003)

01 February 2012 – “ Maybe Tomorrow ” (Stereophonics, 2003)

Positive open on yet again hopes of getting the Greek PSI out of the way “soon” with flattish overnight action in the US(despite both disappointing earnings and economic figures) and Asia. EUR back from low 30s to over 1.31 with stocks up about 1.5%.European PMI figures by and large as expected, hence still below 50, while Chinese figures came out slightly higher. Need to follow future POBC (in)action, as Asian markets had surged before the New Year break in hope of some loosening thereafter and have since only been given liquidity. Out-of-the-box logic: if figures are not bad enough, this could lead to some disappointment.
EZ barometer Belgium officially in recession with negative Q3 & Q4/2011 GDP. US mortgage figures low, employment disappointing. Doesn’t seem markets care that the decoupling seems to fade wit US equities leaning on European “risk on” mood for support.
Weaker Bunds ahead of the EUR 5bn auction led to general tightening of 5 to 20 bp mid-morning. Equities back to Oct 2011 intermediate highs / July levels, before the slide, nearly up 20% from the Nov 11 lows. Credit indices back to Monday 3-month lows to October 2011 levels for Financials and even early August 2011 for corporates. Even Cross over is now back through the 600 mark to August 2011 levels. Spanish curve now through the post-intervention August 2011 lows and back to levels last seen in November 2010 – of which Italy is still miles away.

Okay-ish Bund auction of EUR 4.1bn at 1.82% (plus 900m retained for market intervention) with second lowest level ever reached for a 10 YRS auction (after hitting 1.80% in Sep 2011). BC 1.4 and 5 cts tail (1/2 bp). Half the bids without price limit. Decent.
EUR 1.5bn Portuguese 3 and 6m bills were sold, too, despite the late jitters on the bond side. As all bills lately, better rates than before, albeit with a lower demand. Still, we’re talking of 4.07 and 4.46% yields here. Decent. Portugal tightening in throughout the curve today anyway. The Portuguese government has been keeps pointing out its limited needs for this year (EUR 10bn of bonds due on June 15, already covered and raised by the bail-out) and overall better figures than Greece. Still, 5 YRS onwards bonds trade at 50 cts on the EUR.

Not much news from the Greek front, apart from regular reassurance to be just a step away. Let’s wait another day… Αύριο

3m EUR basis swap down to 70.5 and nearing the 68.5 low traded last Thursday, the lowest level since it jumped from mid 40s to mid 80s in the first week of August before hitting a 157.5 high end of November.
ECB deposits down EUR 7bn to EUR 472bn. Somehow seem to hover near LTRO levels, give or take.
Baltic Dry just down 2.6% to 662. Finally a new low! Need to seriously scroll back to find lower levels, as traded between April and end of August 1986. Absolute low ever was 554 several times end of July / early August 1986, 16% from here. Note that oil was then trading about on its lows, too, - but around 10$.

RISK ON mood very supportive with another 2 senior financial deals (8m CCCIF & 5 YRS Commerz), as well as Nordea with a 10 YRS LT2 on offer. Next to this, we saw the first public Cédula printed since May 2011 with Spanish championSantander delivering EUR 2bn 3 YRS. With a pricing basis of about 50 bp to the Spanish curve, this puts it on par price-wise with ICO GG ware. Biggest covered bond order book this year – and highest spread paid by a EZ CB issuer, too… Btw, talking of size, yesterday’s Petrobras deal was a serious contender in the big issuer league with a final print of USD 7bn, spread over 4 tranches from 3 to 30 YRS (matches mid January’s USD 7bn SAB Miller thirst-quencher. BRICS oil is no USbeer yet, but fast closing in. Record remains Kraft’s USD 9.5bn deal in Feb 2010). No EUR corporate today.
After another round of increases, I reckon EIB has by now topped EUR 20bn equivalent of issuance YTD, 1/3 of its programme. It that continues, programme will be done by end of Q1… Not bad.

German Bunds initially weaker ahead and then stable lower after the auction before crawling back after weaker US figures and on rally exhaustion. 10 YRS Bunds closing @ 1.83%, having auctioned at 1.82%. On tomorrow’s menu: French OATs and Spanish medium term (Mmmmhh…LTRO food!)

General spread performance to Germany with an outperforming periphery: Netherlands +32 (-4), Finland +42 (-5), 10 YRS swaps +42 (-5), France +129 (-6), Austria +133 (-5), Belgium +170 (-17), Spain+299 (-17) and Italy +384 (-21). Note next toItaly and Spain, how Belgium is coming in fast, too.

Everything by and large back to August 2011 levels: Crisis zapped?

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