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Reading the curves: between dataflow and “technicalities”. On the one hand, the pure reading of the macro flow , while still mostly suggesting weakness ahead in terms of growth and a gradual moderation of inflation, is starting to provide some nuances. On the inflation side, it may now be the time to look not only at YoY comparatives, but also at MoM ones (they could be suggesting inflation stabilising around 3% but probably not below in te quarters ahead) Beyond the mere macro readings, a second element of analysis must now be born in mind: the fiscal approach by core countries and its effect on the benchmark curves: the insistence by the German government to find the way to dodge this technical challenges (high court) leads us not to expect any major change in the issuance outlook for core sovereign bonds at leas in FY24. Our strategic/tactical approach to curves: i) we now see the market trying to stabilise long term core reference rates around recent lows (2.60% in the case of Bund) rather than finding a strong excuse to push yields further down. ii) we are inclined to consider that inflation expectations are now somewhat too low and could offer some room for upward reversion; iii) this should also be consistent with some reversion of the recent flattening in the curves. Our strategic/tactical approach to the peripherals i) we expect a steepening in the 2Y-5Y Italian credit curve, mainly supported by the expected ALM activity by the Treasury; ii) we expect a spread tightening in BTP vs. DBR in the short part of the curve, in particular in the 2Y areas to 35-40bp; iii) the (lack of) supply activity in the next few weeks and the market expectations for the syndicated supply at the beginning of the next year might lead to a flattening of the IT-SP 10Y-20Y; iv) regarding PGBs we expect some additional spread tightening, but given the steepening in the Portuguese credit curve of last week, we are now more incline to see tactical value in the 5Y-7Y area. Weekly supply On the bills market total issuance will be c.EUR21.3bn in gross terms and c.EUR9.7bn in net terms (redemptions from France). In bonds EU, Germany and Italy will be active. Total issuance is expected to be c.EUR15bn in gross terms and c.EUR9.4bn in net terms (redemptions from Italy and Spain). |