ITC Fixed Income Morning Meeting: Bunds to open around 137.92 (-4), Bobls at 124.82, Schatz at 110.25, Gilts at 114.90 (Ref 130.16+ TY)
- UST NY Recap: USTs sold off y’day in a parallel fashion as 5y, 10y and 30y yields each rose by 4bps. News that the Greek bailout has been approved dominated the market in early trade, causing treasuries to sell off and the EUR to spike as dip buyers shortly stepped in. We heard some good RM selling in USTs which helped them underperform bunds by around 2.5bps, as treasuries printed new session lows just ahead of the 2y supply. The 2y auction was solid, and consistent with recent supply events. Later in the session, we heard RM buying in treasuries and some short covering from numerous accts helping the grind higher, as well as HF selling of S&P futs. TIIPs yields rose and BEIs turned higher as investors looked for inflation protection after seeing oil and gasoline rise to highs for 2012. Desks saw good demand from RM accounts, especially in the new 30y TIIPs. The 30y outperformed, widening by 2bps. The 5y, 10y and 20y widened by 6bps, 3bps and 3bps respectively.
- US Fed Ops: The Fed is scheduled to buy $1.5-2bn in the 20-30y sector. Feb41s, May41s, Aug39s, Feb42s, and Nov39s look cheap versus the Treasury spline.
- US 5yr auction: the Treasury is scheduled to auction $35bn in 5s, where demand remains robust. The b/c ratio has generally remained above the previous 12m average in the previous few auctions. Likewise, the previous five auctions have all come through, by an average of 1.1bp
- USTs in Tokyo: USTs are lower, slightly steeper. Volumes are above average. Around mid-morning, a seller hit the market lower and has kept us down. US 141.08 -9, TY 130.17 -3 1/2, FV 123.03 -1 1/2, TU 110.06 1/4 -1/4, SP 1361.60 +1.50, Eur 1.3228 -18
- European Fixed Income: Bunds to open around 137.92 (-4) . At 10:30GMT, Germany will auction a new 2y 03/14 Schatz for E5bn (est. 46k Schatz futures equivalent). Desks suggest that the new Schatz should benefit from CTD status, a factor which should prove supportive of the auction. Dealers note that new issue has not traded yet on basis or roll, which is quite unusual, and is likely to have an ASW spread of around 3bps over the current benchmark, which would imply a yield of around 0.29% at auction. German auctions have fared very well so far this year, and the 2y sector is no different, desks suggest that strong demand at the previous 2y supply should bode well for the auction.
- Gilts: At 09:30GMT, the BoE Minutes for the 8-9th Feb meeting are due for release. At the Feb meeting the bank increased the size of the APF by £50bn to £325bn. Analysts note that of particular interest will be the voting from different members on the size and form of this latest extension of QE. There is no consensus for the QE voting pattern, though many analysts are expecting a very small minority of the more hawkish members to have voted not to extend purchases. Some suggest that we may see a three-way split amongst the MPC, with some of the more Dovish members, such as Posen, voting for a £75bn extension, King and a majority in favour of a £50bn extension, and one of the more hawkish members, such as Dale, to have voted for no extension.
- At 14:45GMT, BoE will be buying in the 7-15y sector for £1.5bn. Previous sub/cover was high at 3.84x with most of the gilts clearing near the mid-market level.
- Euribor & OTC: At 10:00GMT, the ECB’s 7-Day $ allotment is due, where $3.7bn is maturing.
- Economic Releases: At 06:30GMT, France CPI for Jan is expected to fall to -0.2% (vs. 0.4% prev). Analysts suggest that goods prices are likely to have fallen through January as the new winder sales season starts. While prices are expected to have fallen,analysts see some upside risks given the rising energy prices, in particular the price of crude, as well as the 4.4% rise in the regulated natural gas price.
At 08:28GMT, German PMI for Feb (prelim) is due, consensus is for a rise in the mfg survey to 51.9 (vs. 51.0 prev). Desks note that while the headline index rose above 50 in January, the new order component is still below this key level. Analysts will look for improvement in the new order component to signal a stabilisation of economic growth.
Eurozone PMI surveys for Feb (prelim) are expected at 08:58GMT, consensus is for a fall small rise in both mfg and services surveys to 49.2 (vs. 48.8 prev) and 50.6 (vs. 50.4 prev), respectively. In Jan, mfg PMI rose as the falling rate of new order and new export orders declined. Analysts suggest that this trend is likely to continue, however do note that the rising oil prices and continuing sovereign debt crisis should result in the PMI staying in sub-50 territory.
- Speakers/Other Events: No key speakers for the session.