ITC Fixed Income Morning Meeting: Bunds to open around 137.96 (-1), Bobls at 124.80 (-4), Schatz at 110.23 (-2), Gilts at 114.68 (-4) (Ref 130.21+ TY)
- USTs in Tokyo: USTs opened lower in catch up with Bunds yesterday. There were some early dip buyers, accounts picking away at the low end of the recent range. As the Eurgroup news hit the wires, USTs were hit lower and Eur spiked. The belly led the move but the sell-off was met by further dip buyers in 10s by Asian Central Bank. The market has since firmed up off their lows, also aided by the reversal in the Eur (high 1.3296, last 1.3268). US 141.23 (-12), TY 130.21 1/2 (-8), FV 123.04 3/4 (-4 3/4), TU 110.06 (-1), SP 1365.40 +5.70
- US Supply tomorrow: Today, 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: Today, 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 look set to open around 137.96 (-1)- downside risks. Finally the Greek deal has been done- E130bn package, debt/GDP to 120.5% by 2020. Tokyo has seen small bank selling of German 10yr. Technically, a clear break of 137.89 remains needed to retarget the 136.93 low.
- Note: There will be a technical briefing: Second adjustment programme for Greece – Tuesday, 21 February 2012 at 10.30CET
- {EU} Eurogroup statement http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ecofin/128075.pdf
- Gilts: The UK are scheduled to tap the 50y 0.375 03/62 via syndication for an estimated £3.5bn. While the timing has not yet been specified many desks are expecting the launch today, as has been seen in the past. The issue is thought be done straight and therefore should weigh on gilts. Desks note that in the coming 5 weeks there is an abundance of supply scheduled in the long-end of the linker curve including a syndication and two auctions which will likely provide a test for the market to absorb. The UKTI 0.375 03/62 has a RY around 40bps lower than at the initial launch in Oct and looks rich on an outright basis. In ASW however, desks suggest that the adjacent 11/55 issue is trading around 5bps richer and that should result in relative value switching into the tap, likely narrowing the spread. Desks suggest that the very high convexity of the issue makes the issue attractive given the UK requirement for pension funds to match assets with liabilities and therefore have a bias to be long duration.
- The BoE will continue their APF operations at 14:45GMT, buying in the 15y+ sector for £1.5bn. The previous sub/cover came in at 2.46x, which is relatively higher, however the pricing data showed the bank paying up for most of the gilts offered which caused a sharp rally in the long gilt future.
- Euribor & OTC: At 10:15GMT, the ECB’s 7-Day MRO is expected to see E135bn allotted, with ?143bn maturing (Reuters poll). Then at 12:00GMT, the ECB will attempt to sterilise ?219bn via 7-Day Term Deposits.
- Economic Releases: At 09:30GMT, UK PSNB (ex. Interventions) for Jan is due, consensus is a surplus print of -6.3bn. Last month, net borrowing came in much better than expected at 13.7bn and the improvement is January is likely to be the result of quarterly corporation tax figures and high self-assessment tax receipts, this should keep the UK government on track to meet their 11/12 FY fiscal targets.
Eurozone Consumer Confidence for Feb (prelim) is due at 15:00GMT, analysts expect a small improvement to -20.3 (vs. -20.7 prev.) this would show consumers’ perceptions of the general economic situation have shown a modest improvement. While the uncertainty surrounding the sovereign debt crisis continues to weigh on sentiment, desks suggest that the improving PMIs in January should prove supportive.
- Speakers/Other Events: No European speakers scheduled for the day, however after the European close, the BoE’s Bean will be speaking in Glasgow at 19:30GMT.