05 January 2012

05 January 2012

Another soft open, despite a closing uptick in the US markets. Mood got grimmer at the European open with the EUR breaking lower, Hungary and Spain weighting on players’ minds. The French auction was put forward as a big test of sentiment, but it just fared quite well with nearly EUR 8bn raised in long to ultra-long paper with decent BC, ranging from 1.6 to 3.2 and limited tails. Never mind that test passed, markets shrugged off results to concentrate on the weaker financial sector (Spain, Italy). Credit more resilient at open than equities, but then again, equities had somehow decoupled of late. Things didn’t improve in the afternoon and some serious EZ depression set in with widening sovereign spreads, softer CDS and the EUR testing sinking through 1.2800 (slicing without noticeable rebound through the 2011 low at 1.2870, next support 1.2650, then1.2600).

Credit in sync with equities into the weak close. Financials very soft (+19 bp or 7%). SovX 20 points (5%) from its all-time high. Main actually the anchor, here, hovering back to its post-August 180 pivot (145 180 215 chart levels)

All spreads to German 10 YRS much wider, except Finland and Holland: Netherlands +39, Finland +47, France +149 (+10),Austria +150 (+17), Belgium +271 (+26), Spain +377 (+26) and Italy +519 (+19). Note that Italian 10s are now back over the psychological 7% mark (7.05%).

Supply remained sustained and got done, but it’s about time the shop closes for a long weekend in parts of Europe, as the negative market environment is of no help. Still, two more EUR covereds went through (albeit in diminishing sizes and,, to some extent, growing NIP), as well as Barclays entering the GBP CB market. One should lose sight of the fact that the this year round of CB offering is paying historically spreads. Rabo managing to extract another Jumbo-sized benchmark by jumping on the short FRN bandwagon. EUR 4bn senior EUR done in the first week, not a bad start, especially as their overall 2012 funding target is something like EUR 20-25bn.

EFSF done and dusted at pre-agreed, discounted level.

Good German domestic fare (for domestic consumption) with Rentenbank and Länder in FRN format, as well as a first Länder Jumbo from Hessen. Corporate and auto traffic in Europe rounded up by Peugeot.

Time to bring this first week to an end without further drama: Monday closed, Tuesday good, Wednesday less good, today bad… Haven’t had any sovereign rating rumours for some time, nor weekend emergency meetings, either. Beware of the Friday afternoon rumour mill…