06 January 2012

06 January 2012

In a repeating pattern, the US markets closed about unchanged, catching up on earlier, European induced losses. The decorrelation between US eco figures and European gloom and doom doesn’t seem easy to put into price action yet, so US equities are weaker until Europe finally closes. In any case, this rebound helped stabilize Europe (half closed anyway) at the open and, in absence of anything else, markets went into “wait-and-see and hope for the weekend after US job figures” mode until the afternoon.

The uptick caused by better than expected numbers was neither high and didn’t last, either, on the contrary. Greek PSI discussions seem to seriously resurface, but still don’t really wreak havoc yet. Austria still getting a serious beating via Hungarian vows (and final Fitch’s downgrade to junk, in line with other rating agencies) and was the lone underperformer today (+10 to Bunds), knowing that there’s an auction looming next Tuesday, which doesn’t help either. EUR remains weak, very weak, all the more after the US figures. Back to Sep 2010 levels. Testing 27 level; real supports .2650 & .2600.

Most spreads to German 10 YRS unchanged to a little wider, Netherlands +38, Finland +47, France +151 (+2), Austria +159 (+9), Belgium +278 (+7), Spain +385 (+7) and Italy +528 (+7). ECB buying was supportive in the morning, but the periphery first trailed weaker BUND upside in yield and then widened as BUNDs jumped up when equities went negative. Italy now 7.13% (after a 7% close at the end of last week).

Supply finally sidelined after an outstanding start into the year with 9 covered bond benchmarks for EUR 13.75bn (next to the GBP DB debut by Barclay’s and Bank of Nova Scotia’s USD trade), as well as 7 senior deals for 4 issuers totalling EUR 9.75bn and the first raft of SSA (EFSF, German Länder, European agencies and supras in non-EUR) and corporates (mainly car makers) has gone through pretty bravely. Just to stress: after a long period of hibernation, we pretty much got as much supply in 3 days than during Q4/2011.

Note that several European corporate household names seemed to have fare well and long in the US market this week, rounded off by yesterday’s low IG Pernod, who waited for the cars to pass by before issuing (to avoid any DUI incident), but hitting into 30 YRS.

Next week will remain plenty thrilling with some more covered bonds on the block, as well as Southern European auctions to close the week on Thursday and Friday (13^th), which will be judged as key sentiment test. Anyone (KfW, Belgium, CFF, ANZ, ING senior?) wanting to be on the safe side will try to squeeze in ahead of Thursday, which will as well see the ECB and the BoE rolling into 2012, if not in action, at least in speech.  Expect Monday mood check and announcements by Monday noon, if things look rosy. No need to haggle: New Issue Premium (NIP) doesn’t seem to be issuers’ biggest worry these days. In the meantime, we’ll need as well to monitor EZ mood, Hungary and the health and life of the European banking sector.

Chart levels

Main 155 – 169 – 187 – 215 // Financials 241- 270 – 307 – 365 // SovX 274- 303 – 338 – 394

Euro Stoxx 1936 – 2071 – 2154- 2221 – 2288- 2372 – 2506

2 YRS swaps 1.20% - 1.50% - 1.69% - 1.85% // 10 YRS swaps 2.34% - 2.68% - 2.89% - 3.06%

EUR 1.19 – 1.26 – 1.265 – 1.2870 – 1.30 – 1.329 – 1.335