25 January 2012 – “You Keep Me Hangin' On” (The Supremes , 1966)

25 January 2012 – “You Keep Me Hangin' On” (The Supremes , 1966)

Markets still in kind of “wait-and-see” mode. Risk appetite biased to the downside, given unresolved Greek PSI discussions and lofty levels attained lately. Apple figures were good for a positive Nasdaq close and upbeat Asian session, but eventually you can’t eat iPads and can’t pledge them into the LTRO either, so European gloominess took rapidly hold. German IFO better then expected, but they were already second-guessed as being so, hence the impact was not even positive for a minute. EUR short squeeze running out of steam and correcting to mid 1.29s. Then again, as already yesterday, there’s some resilience in the correction. So nothing very rabid for the moment. Credit drifting. Slow-mow correction. Last set of figures for the day were soft US housing figures, but that’s nothing new. Waiting for FOMC interest rate outlook.

WEF comments start to abound. But as most speeches were probably all already written, it seems doubtful anything fresh and crispy will come from there. New insights maybe…

Baltic Dry now at 784 (-3%). Overcapacity and Chinese New Year or not, both were already foreseeable mid December at 1930 (-59%). Very odd… ECB deposits again a couple of billions lower at EUR 486bn.

The German 30 YRS auction went extremely well, helped by a little risk aversion, a little bottom-fishing in price (113.20 from a 120 high 2 weeks ago) and in a touch of steeper curve. B/C of 2 with EUR 2.5bn added (no tail). Comes on back of last week’s 50 YRS Austria, yesterday’s (slightly disappointing) Dutch auction and today’s nice and chunky EUR 4bn CADES 2025 issue. Good run for the long end, as 10 YRS Bunds widened to 176 from 161 against 2 YRS since 13 Jan and 10-30 to 64 from 58.

New issue or curve management? Kicking the Guiness can down the road? Ireland managed to switch EUR 3.5bn of Jan 2014 at 98.35/ 4.902% bonds into NEW 5.125% Feb 2015s at 98.20 / 5.15%. Matched prices and amounts.

It ought to ease 2014 redemptions with EUR 11.9bn outstanding on the switch bond (until today’s exchange). While seen as “re-entry” of Ireland into the ring, question is whether this a real investor support or a domestic exercise, given the tight premium paid. The basic EUR swap curve between 2 and 3 YRS already pays 9bp and the 2-4 YRS IRISH spread is about 50 bp, so 25 bp pick-up doesn’t represent a huge premium. Need to know more about participating accounts. Then again, first levels were wider, so someone picked up the offer.

Primary market still on half speed. CADES highlight of the day. Some more EIB supply. ICO, maybe profiting from FADE’s deal being pulled, printing EUR 1.5bn 6 YRS, solely with domestic banks (domestic LTRO consumption?).

Spreads to Germany drifting sideways, periphery a tick softer for choice: Netherlands +28, Finland +39, 10 YRS swaps +48 (+3), France +119 (+3), Austria +142 (+3), Belgium +200 , Spain+342 and Italy +425 (+11).

Portugal in the doldrums again with the whole yield curve about 50 bp wider. While the Greece PSI haggling continues with the ECB trying to avoid being seen as “private” and dragged into cuts, Portugal haircut questions keep popping up.