09 January 2012

09 January 2012

Markets opened flat to positive after a weaker US close and a weaker Asian start, when the EUR traded down to 1.2670 low before European open. Thereafter sideways to positive tone. At some point the weaker EUR will be seen as equity / exporter supportive, as long as commodities don’t spike. Credit mostly unchanged until weakish close. Most European sovereigns harked back on Friday’s late afternoon widening, both as corrective move as well as on the back of this year’s first Merkozy, aiming to finalize the European compact. The question remains how third parties outside the Franco-German couple will see things. Tobin tax discussions (Question: Who will be paid for what with that tax?) might as well become a political and a philosophical blocking point. To be followed.

Further European and / or geopolitical tension points: Greek PSI discussions still ongoing (Doesn’t seem to raise tension. Yet.). Hungary not solved. Iran situation. SNB head quitting. Often prophetic Baltic Dry tanking (No need for tankers = nothing to ship…). Financials still weak with most stocks in the red, as UniCredit’s 47% decline since last week doesn’t bode well for bank recapitalization. Somehow, all this is not spoiling the party too much. So far.

But then, if things were really cool, how come Germany managed to issue 6m bills at a negative spread; a first in its history? EUR 4bn issued at 100.0062 or -0.012% with a 1.8 B/C.

Spreads to German 10 YRS tighter, nevertheless: Netherlands +38, Finland +46, Austria +143 (-15, as Hungary was signalling some interest to maintain IMF dialogue) France +146 (-5), Belgium +270 (-8), Spain +372 (-14) and Italy +528 (+1).  Italian 10s now at 7.14%, nearing November double-top at 7.25%. Note that 10 YRS EUR swaps are about to hit record lows again on the 2.35% double-support (Sep & Nov 2010). A break thereof and lower might trigger some covering by investors, chasing yields. Might come in handy for 10 YRS sovereign, SSA and AAA issuers. Like them or not…

On the primary side, as things didn’t look bad, another (expected) wave of deals hit the screens across asset classes. After last week’s choice of rather more first quality / household names, needed to reassess market conditions, today was dominated by lesser rated or recognized names and higher spreads, showing that markets really are on the mend. One will note that sizes and oversubscription are diminishing, which as such is no surprise given last week’s tendency to hit investor bids nearly in full and above mentioned lesser name recognition. Obviously, with Southern European auctions looming (btw,Spain signalled an upsized auction target for Thursday to EUR 5bn), issuers are rather trying to be on this side of Thursday.

Some transactions seemingly struggling to attain desired size and closed rather late in the day, showing that saturation effects might already show with some investors. Copy-cat deals, like in “too much likeness at the same time with pricing reference being the one deal of the last peer and no tick more”, heavier.

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