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

18 January 2012 – “(I am not) Impressed” (Charlie Sexton, 1985)

18 January 2012 –  “(I am not) Impressed” (Charlie Sexton, 1985)

Had some rather tight-ranged ups and downs for most of the day with an initial weaker tone on World Bank’s assessment of things to come (gloomy), followed by a squeeze as simultaneously news hit the screens that China was giving its major banks more lending leeway going forward and an IMF outlook for a need of addition resources of USD 1bn was misquoted as its willingness to ready up USD 1 trillion for lending (Final correct quote was additional resource needs of USD 500bn). Once that trickled though and Germany announced lowering its 2012 growth forecast, the market tone once more changed and markets slipped back to closing levels. Down, up, down, sideways, down, up, flat… Baltic Dry through the 1000 mark. EUR directionless around 1.28+

In the meantime, Germany raised 2 YRS funds easily (despite trading 5 bp from their all-time lows), while Portugal issued bills in decent manner (rates unchanged in 3m to lower in 6m, bid to cover higher in 3m to lower in 6m, as well as 1-year paper). ECB overnight deposits jumping impressively to a further record of EUR 528bn (from EUR 502 yesterday). Would someone care for another slice of distrust?

Financials still in good recovery mode (as is the USD/EUR 3m basis at -78, falling to August levels, from a -155 high end of November, as equities hover on early August 2011 / intermediate October 2011 highs). Financials now pretty much nearing 50% 2011 high-low (365 / 117) and nearing early December lows, marked by the then next new newest solution, which then was hammered by S&P putting everyone on review (now solved).

Spreads to Germany by and large stable: Netherlands +30 (-2), Finland +34 (unch), 10 YRS swaps (aka swap spread) +48 (-2), Austria +135 (+10), France +135 (+3), Belgium +240 (+2) [+250 on the new reference], Spain+336 (+2) and Italy +462 (-10). Austria wider on announcement of 10 YRS syndication. Yesterday’s Belgian deal stable. Portuguese govies softer again, despite ECB support.

High margin corporate day in primary markets (because of nationality or structure) in medium to medium long maturities. ICO’s EUR 2bn 5 YRS return is more than decent, given the Spanish agency’s guarantor’s fate lately. This might be seen as possibly paving the way for a cédulas come back, if sentiment holds, but, uuuh, it’s been a long time we saw some of that. Covered pipeline eerily quiet after the first 2 weeks of supply. Strategic mandates seem to have gone through for the moment. Entering black-out periods, too. Good for digestion.

Market mood somehow unimpressed by info traffic, but finally quite resilient, as most news were eventually rather unpleasant. Looking for guidance - or someone’s stimulus.

Tomorrow is (once more) (bond) auction day with 2016/2019/2022 Spain on the menu, next to French 2014/2015/2016 (plus ILBs in the afternoon). Add Austrian 10 YRS via syndication, as well as eventually 50 YRS (Would probably lean on OAT 2055 as pricing reference, but the whole thing looks like life back in 2005…) and you have some serious test for long end appetite (after Tuesday’s Belgian deal) AFTER everyone’s downgrade.

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