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


Monday, 25 June 2012

25 Jun 2012 – " Catch My Fall " (Billy Idol, 1983)


25 Jun 2012 – " Catch My Fall " (Billy Idol, 1983)

Sooo… Let’s get started for another week of… waiting for THE solution, knowing that chances are there won’t be one. Asian close slightly in the negative, more for China catching up on Thursday’s sell off (and now back to mid Jan levels). US close on Friday was near highs, but far from making back Thursday losses.

Weekend titbits scarce outside confirmation that the leading Greek government tandem was skipping out on the Brussels bash on Thursday and Friday. And delaying the next Troika visit. Given the stern calls echoing their opening gambit about softening the terms and weekend reports how many civil servants had been hired over the last 2 years, instead of being dismissed, it might just be as well.
Why the ECB hails the soccer semi-finalists in a nightly tweet is a mystery to me. The FIFA doesn’t hail ECB decisions either, does it? 

Finally some federal issuance agreed to in… Germany. In a bizarre twist, the Federal government has finally given in to long lasting calls from the German Länder to be able to profit from its better funding terms, in exchange for ESM support. The whole solidarity against living by the same rules that is so forcefully pushed by Germany upon the EZ might finally yield common domestic issuance after 60 years. And we’re talking about a federal state that has had the strongest horizontal and vertical equalization for decades. And still, we’re talking about mean bickering and support being traded against sending some spending costs back to the Bund etc… So one has to see Germany’s stance in that light: it’s already a nightmare on a small, national scale, hence they DO know what this would give on a broader basis.

Will it impact Bund spreads? This seems doubtful to me at this stage, knowing that details have not been hammered out yet and that Deutschland Bonds will first see the light in 2013.
2011 bond funding for German Länder were about respectable EUR 60bn last year in over 200 deals, led by North Rhine-Westphalia for about a third, followed by Rhineland-Palatinate, Berlin, Lower-Saxony and Hessen for about 10% each. Average maturity was 5.5 years. Länder benchmarks trade roughly about mid-60s over 5 YRS OBLs, as do joint Länder deals, which is about flat to swaps (OBL thus swaps -65). Being stuck around swaps has always been tearful for Länder treasuries, as they rightly see themselves as Bund risk, as the Länder ARE the Bund (Hence Fitch’s all-around AAA for the Länder). So we are roughly speaking of EUR 200m of potential savings if half was raised by the Bund for the Länder.
2012 Finanzagentur funding is pencilled at EUR 252bn (down from EUR 283bn last year), of which EUR 172bn in bonds (after EUR 181bn). As such EUR 30bn (17%) doesn’t seem like a huge dilution, knowing that the Länder supply would be halved as well and that scarcity would lead to tighter prices, too. Might have a bit of a knock-on effect on KfW bonds (trading swaps -25 / OBL +45) and make insurers and German real money buyer whine, where yield ought to come from.
But, by and large, this shouldn’t change the way Bunds trade. Nicht die Welt…

ROff open, given the prospects of the week with the Core rapidly tighter by 5 basis points, Spain wider by 15 and with Italy out by 10. Italy is in for some chunky 14bn of auctions between tomorrow and Thursday to close the quarter. Equities down 1%. Credit equally wider. EUR through 25 handle. ROff.
No hard European data to speak off. Spanish PPI surprisingly 3.2% YoY after 3.0% (fcst was 2.8% after 3.1%). Dutch depressive Producer Confidence bottoming out at -4.8 after -5.

Excitement of the day: the official confirmation of Spain sending a formal request for bank aid to the Eurogroup. Then again. No. Not exciting.
Gloom increasing a little, surprisingly, as Fitch joined its peers in putting Cyprus non-IG, which probably will speed up the next bail out demand.

Government supply out of Germany with EUR 3bn 12m bills sold at 0.019% (after 0.026%), of which EUR 955m retained. Belgium, as lone bond issuer of the day, raised EUR 0.8bn 5 YRS at 2.13 % (after 2.38% last month), EUR 1.3bn 10 YRS at 3.22% (after 3.45%) and EUR 0.7bn 20 YRS at 3.77%, hence profiting nicely from the flight into bonds. France’s weekly bill auction raised EUR 4.7bn 1m at 0.056% (after 0.058%), EUR 1.5bn 3m at 0.104% (0.094%) and EUR 2.2bn 12m at 0.177% (0.19%), so about unchanged on average.
That was the easy part of the week. Will have the Netherlands issue EUR 3bn 10s tomorrow (2.14% last month), which, as of today, shouldn’t be a challenge, but then lining up EUR 3bn 3 and 6m Spanish bills (last 0.85% and 1.74%) and EUR 3bn 2 YRS Italian Zeroes (last 4.04%), as well as EUR 1bn Italian ILBs. Wednesday will get a EUR 9bn chunk of Italian 6m bills (last 2.10%) and Thursday EUR 4bn BTPs.

Morning session in ROff mode, lunch in ROff, pre-US open in ROff… Spain back to 6.50% with Bunds down through 1.50%, so clocking in at 500 over again. Equities down by about 2% and credit wider. Chicago FED activity at -0.45 (fcst -0.3 after revised +0.08) as pre-open downer.
Not much else to chew on… Moody’s rumoured to get medieval on Spanish banks tonight. The Greek pair’s strategy of sitting out the next confrontation confirmed and the Troika visit postponed. Merkel worried that, o surprise, people would likely spend time again discussing Eurobonds, bills or any other attempt to pull support and liquidity out of Germany. The Spanish MOU to be defined by 09 July, which means about when people will flee on holiday… ECB still not adding bonds under the SMP with Nowotny later explicitly stating it rather would have the EFSF do that anyway. Cyprus bail-out seemingly now imminent.
Better than expected US home sales at 369k (fcst 347k after 343k) looked for a short while like putting a floor under equities – but then, after all, no…  ROff


Oh, had Cyprus bailout and Greek FinMin resignation confirmed just after COB... 
New Issues on uneasy ROff Monday action, hence nothing outside a domestic EUR 250m short 5 YRS FRN at 3m flat for NRW.Bank. EU readying a 2028 benchmark for tomorrow on IPTs of MS +70 (Issued 10s at MS +56 and 2032s at +78 in Apr).

Closing levels:
10 YRS Yields: Germany 1,46% (-12); Luxembourg 1,81% (-9); Swaps 1,89% (-9); Finland 1,91% (-11); Netherlands 1,98% (-11); EU 2,29% (-8), Austria 2,42% (+2); EIB 2,51% (-7); France 2,58% (-2); EFSF 2,64% (-8); Belgium 3,11% (-4); Italy 5,99% (+22); Spain 6,59% (+29).
Well. Looks like a reversal from the last movement. Spain especially weak, but had gone solo on Friday afternoon, but dragging Italy all the way back to the 6% mark.

10 YRS Spreads: Luxembourg 35bp (+2); Swaps 43bp (+3); Finland 42bp (+5); Netherlands 52bp (+1); EU 83bp (+3); Austria 96bp (+13); EIB 105bp (+4); France 111bp (+10); EFSF 118bp (+4); Belgium 164bp (+7); Italy 453bp (+34); Spain 513bp (+40).

EUR swap curve 2-5 YRS 43bp (-5,0); 5-10 YRS 64bp (+0,0) 10-30 YRS 27bp (+1,0).
2 YRS German BKOs closed 0,070% (-5,6) and 5 YRS OBLs 0,53% (-11).

Main at 178 from 170 (4,7% wider); Financials at 290 after 276 (5,1% wider). SovX at 298 from 295. Cross at 703 from 680.

Stoxx Futures at 2127 / -2,5% (from 2181) with S&P minis at 1308 (-1,2% from 1324, at European close).
VIX index at 18,1 after 19,2 yesterday same time. Hmmm, can’t explain why that one stays so low. Hammered?

Oil 78,5/89,9 (WTI/Brent) from 79,2/90,6 (-1,0%/-0,8%). Gold at 1575 after 1562 (+0,8%). Copper at 329 from 330 (-0,3%). CRB closes 269,0 from 268,0 (+0,4%). Somehow stable…
Baltic Dry fixed unchanged at 978 for the third time in a row.

EUR 1,248 from 1,253

ECB deposits at EUR 775bn after EUR 769bn.

Greek bonds guesstimates: Greece somewhat weaker with 2023s at 26.75% from 26.50% and 2042s at 22.50% after 22.25% 
(20.25% and 16.75% before the first election round).

All levels COB 17:30 CET

This Week:
Germany: Tue Cons Conf fcst 5.6 after 5.7 Wed Imp Px fcst 2.3% unch YoY & CPI fcst 2.1% after 2.2 % YoY Thu Unemployment Fri Retails Sales fcst 2.3% after -3.8% YoY
France: Tue Cons Conf fcst 89 after 90 & Jobs Fri PPI fcst 2.7% unch YoY Cons Spending Fcst 0.1% after 0.4% YoY Final Q1 GDP 0.3%
EZ: Thu Biz Climate fcst -0.81 after -0.77, Final Cons Conf, M3 fcst 2.2% after 2.5% and CPI 2.4% unch YoY
Periphery: IT Tue Retail Sales Wed Biz Conf fcst 85.5 after 86.2 Thu PPI & CPI SP Mon PPI Tue Budget Wed Retail Sales fcst -7.9% after -9.8% Thu Housing permits & CPI
US: Tue Case Shiller Cons Conf fcst 64 after 64.9 Wed Durable Goods fcst 0.5% after 
0% Thu GDP & Claims Fri Pers. Income & Spending Chicago PMI Michigan Conf
Asia: China leading indicators Japan Thu PMI & Retailers

Click link on title or below for today’s musical support:
 (Agreed. Rebel Yell was way better, but it wouldn’t fit…)

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