ITC Fixed Income Morning Meeting: Bunds to open around 138.18, Bobls at 124.88, Schatz at 110/375, Gilts at 115.58 (Ref 131.03 TY)
- UST NY Recap: USTs rallied significantly on Wednesday, led by the belly of the curve; 2y, 3y, 5y, 10y and 30y yields declined 2bp, 5bp, 10bp, 6bp and 1bp, respectively.
- US FOMC: The Jan statement and the SEP forecasts revealed a very dovish Fed; unsurprisingly, the market’s expectations of fed funds rate at the end of 2014 was revised down from 78bp before the meeting to 64bp (below the median rate of 0.75% the Fed currently projects). The belly richening and 10s30s curve steepening may certainly continue, but further repricing would be dependent on the outlook for additional asset purchases
- US 5yr Auction: Separately, the Treasury auctioned $35bn 5s, which came through by 1.3bp, with a bid-cover ratio of 3.17 (higher than the previous 3m average of 2.97). The decline in indirect bidder participation (43% vs. the previous 3m average of 48%) was offset by the increase in direct bidder participation (15% vs. the previous 3m average of 10%).
- US 7yr Auction tonight at 18.00GMT/1pm NY: the Treasury will auction $29bn in 7s. The 7y tenor has lagged the 2y and 5y tenors in improvement in demand since August. The b/c ratio has largely oscillated around its previous 12m average, and four of the previous five auctions have tailed, with the one in December tailing by 1.3bp.
- USTs in Tokyo: Asian RM buying of 7yr. 5s led for some of the session, but 7s – 10s have taken over. Swaps have been quiet. Regional Asian players have been extending duration and buying outright, some moving out of bills and 2s into 3-4yr. Some buying may have occurred in spd product like MBS – no flows reported, as the FOMC statement showed a number of people expressing desires to add MBS, SSA and other quality spread products. US 142.08 (+15), TY 131.03 (+10 1/2), FV 123.24 (+4 1/2), TU 110.12 (+1/4), SP 1319.30 -.90, Eur 1.3118 +7.
- Barcap Month-End Index Extensions: US Aggregate +0.05 years, US Trsy +0.01, US MBS +0.07, US Agcy +0.10.
- European Fixed Income: Bunds to open around 138.18 (+36). At 10:00GMT, Italy will reopen the 2.15 09/14 BTPei for EUR0.25-0.5bn (0.8k bund futures equivalent). Desks note that this issue is likely being reopened as a result of dealer demand, furthermore given the very small size on offer this should ensure a sound result. Also at 10:00GMT, Italy will auction a new 01/14 CTZ for EUR3-4bn.
- Barcap Month-End Index Extensions: EGB Aggr +0.12 years, Eur Aggr Trsy +0.13, Sterling +0.07, Sterling Aggr +0.03
- Economic releases: From Germany, at 07:00GMT, GfK consumer confidence for Feb is due for release, consensus is for an unchanged m/m reading of 5.6. Analysts suggest that the economic and income expectations are likely to have improved, though this is expected to be offset by a fall in the willingness to buying following the holiday season, leaving the figure unchanged. From the UK at 11:00GMT, the CBI distrubutive trades for January are expected to print at -5.0 (vs. 9.0 prev). Analysts are expecting an easing in total sales following the strong jump in December which was the product of heavy discounting by retailers, desks do note some downside risks to the release, given the falling consumer incomes will likely result in a weak trend throughout 2012, despite the strong December print.
- Other Events/Speakers: No key scheduled speakers for the session.
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