Bunds are lower ahead of the Eurogroup meeting, but given thin market conditions, watch for Corp deal pricings (swapped issuance, see below) to potentially give futures a temporary bid into their pricings.
ITC Fixed Income Morning Recap:
- USTs in Tokyo/London: Cash and Swaps closed (President’s day). No flows of note.
- US Supply tomorrow: On Tuesday, the Treasury is scheduled to auction $35bn in 2s. Auction statistics show steady demand for the sector. The bid-cover ratio remains comfortably above the previous 12m average. At the same time, only one of the previous six auctions has tailed and that too not by much – the January auction tailed by 0.25bp. This is not surprising, given the low realized volatility at the 2y tenor.
- US Supply this week: The Treasury will auction new 2y, 5y and 7y notes for a combined $99bn. Net cash-flow for the week is negative with no coupons or redemptions due, though we do note large cash-flows on the settlement date of this week’s auction of $66.4bn (Coupons $4.64bn and Redemptions $61.72bn) . As part of Operation Twist, the Fed will purchase up to $4.0bn in the 24-30y sector, and sell up to $8.5bn in both the 0.8-1.3y and 2.2-3y sectors.
- US Fed Ops: Tomorrow the Fed is scheduled to sell $8-8.75bn in Dec12-May13 sector. The Fed’s largest holdings in this sector are 1.75% April13s and 1.375% Feb13s.
- European Fixed Income: Bunds gapped lower on Greece optimism. China’s cut in RRR which gave Asian equities a bid. Risk-on tone is keeping Bund upside in check, although one headline today from Finland which suggests the final approval may be held back until March 12th. BTPs opened better bid (large coups/redemptions next week). Semi-core seeing some tightening, with Belgium reversing some of the widening seen on Friday (possible 5yr syndicate coming? and 1bn short-fall in Belgium finances). Bunds found stops on the open (small) and we low printed 137.99 before bouncing quickly. Break of 137.89 is needed to warn of a more conclusive failure.
- All eyes on the Eurogroup meeting today- begins at 9:30 New York/14:30 GMT today. Agenda http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/12/117&format=HTML&aged=0&language=EN&guiLanguage=en
- ITC on European Swaps- could be a volatile few weeks with PSI hedging flows: With the restructuring of the Greek debt conditions finalised via the PSI, banks that have held these securities in their bank books as asset swaps may now be forced to unwind these positions. This would result in financial institutions RECeiving in swaps with maturity corresponding to the maturity of the Greek bond debt held in their books. A lot of these PSI unwinds have already taken place, but the big question is how much is left to be done. They also may want to re-enter the hedge in the new bond. However the question is how many can swap a 5y exposure (say) with 30y. Their fund’s constitution might not allow it
- Gilts: The week sees the UK tap the 50y gilt linker via syndication (probably tomorrow). Cash-flow for the week is negative with no coupons or redemptions due to be repaid. The BoE continue their QE operations this week, purchasing £1.5bn in each of the 3-7y, 15y+ and 7-15y sectors.
- Eur and GBP swaps: a few deals today. Eur 1.5bn Unedic 3yr (MS+50/55), Eur b/m GE 3yr (MS+80 area), Eur 1 bn Intesa 5yr (MS+360 area), Eur b/m Pohjola 10yr (MS+340 area), Gbp EBRD 3yr (Gilts +48 area) and new €b/m Czech 10yr, desks taking IoIs