04 January 2012

04 January 2012

Markets biased to the downside from the open, as US equities weakened into the close (having been closed Monday) and nothing new came up to support the sentiment of weightlessness that had developed over the last 10 days. Credit indices softer, too with financials giving back yesterday’s gains and trailing back to the 280 year-end close SovX wider.

Initially weaker BUNDs, heading into the first German bond auction of the year and with the repeatedly “failed auction” headline in mind (although, as readers will remember the German auction results relevance is not exactly a science). Test passed, no problems, there still a bid for that, at least: EUR 4bn sold, demand for 5. It’s actually the “non-competitive” part that ought to be checked, as half of the demand was, so to say, “at market”.

Next to the Greek PSI, Spanish deficit figures and bail-out rumours, we’d now add the situation in Hungary as outside sovereign factor to watch. Things seem to deteriorate fast there: Give a it couple of more days with HUF at record lows to the EUR and the CHF (with huge unhedged CHF loan exposures there) and we’ll get contagion hitting Austria and its banks like in 2008. EUR back through 1.3000 and diving towards low .29 handle.

Some more adjustments to last days’ spread movements with initially Austria and Spain soft, before others else followed suit. ECB seen supporting the periphery in the early afternoon. Spreads to German 10 YRS: Netherlands +38, Finland +47,Austria +133 (+15), France +139, Belgium +247 (+10), Spain +351 (+11) and Italy +500.

On the supply side, floodgates remain open. What a feast: EUR 6.25bn in senior paper and another serving of 4 covered bonds for EUR 6.25bn. That’s more than we had in benchmark and taps combined throughout November and December (EUR 4.5bn or so) for covereds! One the senior side, only some EUR 7bn were printed early October by top names, before the public market went into full hibernation. So markets are gearing up big time here. One cannot but note that size remains preferred over price and that in this first week (slightly shortened by a Friday holiday in parts of Europe) start of the year liquidity finds an easy match to funding front-loading strategies: Add discount, serve all bids, price, close.

Corporate supply demand was finally met with 2 car-makers putting deals on wheels in EUR and two going the USD route. On the Agencies / Sovereign side, the EFSF is still scouting a EUR 3bn 3 YRS deal, now with a price concession that should make tomorrow’s launch easier than its last appearance mid November, when the full placement of its 10-year deal was actually questioned.  BNG opening the ball for European AAA agencies, stopping out its countrymen at NWB. UK GG Network Rail and EIB going dipping into short GBP. Note the raft of EM sovereign names that was issued in USD.

Traffic is getting really dense out there, very dens. Let’s hope no Black Swan flock crosses the path in the coming days, for fear of indigestion and hangover, as common New Year problems both might be.