French supply announcement (nothing past 10yr next week). €15-30 REC byu Real Money- rebalancing flows.
ITC Fixed Income Morning Recap:
- USTs in Tokyo: Tokyo saws some REC in USD swaps today, but much better buying again in Cash USTs by Asian RM. One RM account was seen buying long-end around noon Tokyo, which took futures to the highs of the session today. London saw Asian good buying on the open too, but this has been faded with Bunds (Rehn comments) and the reversal in Equity Indices. Flows have been quiet since the London open.
- US Fed Ops: Today, the Fed is scheduled to sell $8-8.75bn in the Mar14-Jan15 sector. The largest holdings in the SOMA portfolio in this sector are 1.25% Mar14, 1.25% Apr14, and 1.875% Apr14s.
- European Fixed Income: Bunds opened higher with USTs but found resistance at 139.06 tough to break (61.8% fib 140.23-138.18 Jan range). Since then, a couple of headlines have knocked us lower. DJ reported sources saying that the Greek debt deal will focus on 3.7-3.8% coupon for new bonds, the second, Rehn comments on DJ saying they are very close toa deal on Greek PSI. Since then, BTPs and SPGBs have been off to the races, with BTPs breaking 6% (maybe short-lived? given supply on Monday?).
As for flows today- quiet in Swaps and Cash Govvies. France 10s30s are flattening 1.5-2 bps on the supply announcement (have not included anything beyond 10yr). 10s30s Core may flatten further, according to dealers, as there is no long-end 30yr supply for a while now. Eur 15yr-30yr swaps are seeing REC flows by RM- rebalancing flows
- At 16:15GMT, Bund, Bobl and Schatz Feb ’12 options expire. Feb Bund 138.50C is a large strike with market makers long 25k from a call seller. Market Makers are also long 140C but it doesn’t appear to be an issue for them. There are no issues with Bobl or Schatz expiries.
- ITC: Month-End Index Extns, PGB impact, Equities and Bonds. Quick Note on Portugal and the impact on the indices: As we approach the end of the month, the size of the index extension comes into focus. The recent downgrade of Portugal below investment grade adds another twist to the equation. For portfolio managers still holding Portugese debt after all of this turmoil, a drop below investment grade forces them to sell their holdings no matter what the price on the security. This has been one of the reasons Portuguese debt has widened some 300bp (in 5 year) relative to Germany even as other peripherals such as Spain, Italy have benefitted from the introduction of the 3yr LTRO. Although portfolio managers would normally should have unloaded their Portuguese debt already at this time, will be interesting to see if any of them waited until the last minute to sell their positions.
Other thing of Note: with the S&P rallying +5.67% on the month, while USTs have only rallied some +0.52% (5yr + carry), there could also be some re-allocation away from stocks into Fixed Income at the end of the month (next Tuesday), increasing the market impact of the extensions
- Barcap Month-End Index Extensions:
- US Aggregate +0.05 years,
- US Trsy +0.01,
- US MBS +0.07,
- US Agcy +0.10.
- EGB Aggr +0.12 years,
- Eur Aggr Trsy +0.13,
- Sterling +0.07,
- Sterling Aggr +0.03
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