|
Macro: still undefined (but maybe slightly less dovish). The last two weeks’ data flow has not helped reduce the degree of uncertainty about the risks to growth and inflation. If anything, the general assessment could be that the growth indicators have improved slightly, whereas those for inflation have “worsened” slightly. Curves: not only (macro) reality checking but also pondering some other (quantitative) drivers. On top of the reaction to the seemingly more rates- supporting elements (inflation , paper supply), a countering effect is sparingly arising related to an eventual earlier tapering of the (Fed’s) QT strategy. 2024 Eurozone sovereign debt issuance outlook (the full document is here): i) substantial stabilisation of both net and gross issuance in FY24 vs. FY23; ii) the ECB is set to have a considerable and increasing influence on the supply/demand balance this year; iii) the huge issuance activity in the first two weeks of the year confirms the intention of sovereigns to frontload issuance programmes; iv) the first syndications of this year in the peripheral space showed a very strong demand by foreign high quality investors. Our strategic/tactical approach to the peripherals i) Among peripherals, we like the Spanish 10Y area in credit spread, that is now trading close to the upper bound of the last two years trading range (in ASW terms); ii) we see value in the peripherals 30Y tenors (in particular in the Italian one, that is now offering c.80bp of pick-up vs. 10Y, vs. €-swap curve); we like the 2Y IT-SP (or FR) fwd 8M spread in order to enter into a IT-SP or IT-FR spread-tightening position at wider levels than the current ones and setting up some tactical positions for the Italian ALM activity that we expect in 4Q. Weekly supply On the bills market total issuance will be c.EUR19.8bn in gross terms but negative of c.EUR10.8bn in net terms (redemptions from Germany, France and Portugal). In bonds Germany, Greece, Spain and France will be active. Total issuance is expected to be c.EUR26.3bn in gross terms, but negative at c.EUR8bn in net terms. |