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

30 January 2012 – “ Weisse Rosen aus Athen ” (Nana Mouskouri, 1961)

30 January 2012 – “ Weisse Rosen aus Athen ” (Nana Mouskouri, 1961)

Weaker open, given ongoing Greek travails and Fitch’s Friday evening special. Did hit Asian mood as well, knowing that the POBC did not (yet) deliver on pre-New Year celebration hopes of lower reserve requirements. Hence nothing really joyful to kick-start the week. Likewise, US close uneven.
EZ confidence didn’t show the expected rebound either, be it for consumers, economic or industrial confidence. The EU meeting, which was meant not to be hysterical this time, seems to ramp up quite some tensions and bickering. Fiscal treaty to be closed, but suggestions like an active EU monitoring and intrusion into budgets are of course bound to lead to strong dissensions and raise sovereignty issues. Spanish Q4/2011 GDP minus 0.3%. French government growth outlook cut to 0.5%
EUR weakening back from lofty levels against USD and trading on early September levels against CHF, just after the SNB had stated “With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.” Ouch… If things go eerie and should flight to quality kick in, that might be put to test. And it seems doubtful the SNB would buy GIIPS paper.

Italian auction lukewarm: obviously on lower yield than before but with rather low bid to cover ratios. EUR 2bn 10s issued at 6.08% (+20bp versus Friday close), which was the targeted amount, but new 4.75% May 2017 were only issued for 3.6bn against targeted EUR 4bn. 2021s were sold for EUR 1.15bn with BC of 1.5. 4 YRS fared a little better with a BC of 1.9, but only for EUR 750m sold. Total was EUR 7.5bn versus an expected maximum of EUR 8bn. Italian bonds hence promptly added another 10bp to their slide versus Friday and then stabilized.
Portugal hammered once more with players taking cue from Greek jitters: 2 YRS out by 300 bp (17 plus %), 5 YRS over 250 (20 plus %), 10s nearly 150 (15 plus %). These were by and large the levels Greece traded back in August 2011 in 5s and 10s, although 2s were already inverted then and trading past the 30% level. Still… Fado. Saudade.

“Risk off” taking its toll on credit with financials, which had enjoyed a seriously good run lately (coming from 300 on 09 Jan), snapping back from the low 200s attained on Friday. That low was in line with the end Oct 2011 respite and before that early August levels. Equities have given back half their gains since 13 Jan, when markets realized the dreaded S&P downgrade was followed by the end of the world (and Friday’s Fitch action is barely mentioned today….) Credit for the moment has given back 1/4 , as have financials, versus the sovereign index, which has given back half its gains, too. Things don’t seem balanced yet.

ECB deposits higher by EUR 24bn back to EUR 489bn (LTRO size). Baltic Dry only down 3% to 702 (…). Just another 5.5% until the 663 low of December 2008. Before that this level was only briefly broken in summer of 1986. Need to haveChina rapidly export some goods to the world to turn things around…

Primary markets about open with BNZ finally closing its postponed transaction (albeit on a shorter maturity) and Motability as well as Gas Natural in the market. SSA rather quiet, except the occasional EIB tap, and might remain so for the week in EUR, given the auction barrage on the sovereign front.

10 YRS Bunds @ 1.79% flirting with near-historic levels at 1.76% from mid January and November last year.  All-time low 1.675% in September 2011.

Spreads to Germany initially all wider, although not in undue manner: Netherlands +34 (+2), Finland +43 (+2), 10 YRS swaps +49 (unch), France +133 (New reference Apr 22, 123 +6 on the old reference), Austria +139 (+6), Belgium +188 (+7),Spain+321 (+13) and Italy +427 (+25). Italy back over 6% in 10s, Spain nearing 5% with an auction on Thursday.

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