ITC Fixed Income Morning Recap July 29
29/07/2010 11:13:05
- USTs in Tokyo/London:ahead of the London open, there was a prop seller of 5soutright and vs curve which have knocked the 5yr from 2bps richer to unch now vs NY. There's been some selling of 30yr vs 10s and general profit in 10s by Asian accounts. The curve is bear steepening led by 7s and notes. 7yr auction tonight, somake some sense, although month-end should underpin. There's also been some selling of EGB 30yr vs US, with LM selling 30yr Germany. We continue to watch 5s30s- there definitely wass ome selling of long-end paper yesterday into 5s. 10s30s went to 107.75 on continued selling in oft bonds- 109 is the all time wides. - US 7yr tonight at 18.00BST: The Treasury is scheduled to auction $29bn (-$1bn from June) in 7s today. Although the last auction came through by 0.5bp, recent auctions have generally tailed. Bidder participation data show that the Treasury has had to rely less on broker/dealers as their participation rate has declined over the past three auctions to an average of 35% (compared with about 45% in the 2y and 5y sectors). - UST Curve: Accounts exposed to 5s30s flatteners are underwater now by 8 bps and some are getting stopped out. We're listening out for further stops on this part of the curve- although the index rebalancing may reverse the recent steepening. The 30yr has lagged as concerns on supply in the back end steepened 10s30s to 107.5- above 109 is unchartered territory. - Barcap US Month-End Index Extensions: US +0.06, MBS +0.08, Agncy +0.08,Agg +0.07 - European Fixed Income: Bunds opene firmer with USTs but have given up some of the gains into the BTP supply (39k futures equiv in illiquid markets). The auctionswent ok- the 3yr had no concession and the full 3.5 yards of 10yr were sold at a decent level. ~€28.55bn of redemptions (€17.88bn) and coupon payments (€10.67bn) from Italy at the start of next week certanly helped, as does tomorrow month-end rebalancing. Bunds remain underpinned by tomorrow's well flagged event. As for curvem the steepening of Eur 10s30s have been a result of CVA hedging flows (Counterparty Valuation Adjustment), which started a few sessions ago off the back of the improvement in Sov spreads. However, we are expecting Month-end REC flows to offset some of the steepening pressure in theshort-term . Other noteable flows have included German Agency PAYing in 20yr vs REC 30s. Further down the curve, 1 week EONIA was given at 44.5bps. 1 week EONIA now at 43 bps. Euribors have received a bit of a bid as a result. - Gilts: like europe, 10s30s UK have steepened as well.The steepening, plus weak house prices, the cheapness vs US, decent linker take up this week, plus large month-end have futures underpinned and outperforming Bunds today. - SIZEABLE REBASING FOR UK AND EUROZONE Government index tracking - August: The UK iBoxx one-year and over index should see a sizeable +0.17yrs rebasing as UKT9 7/11 rolls out and UKT4.25 12/40 enters the index. For the Eurozone, EUR86bn of bonds will fall out, contributing to a +0.13yrs extension. For inflation-linked indices there are also likely to be significant adjustments, with the GBP6bn syndicated re-opening of UKT0.625 3/40 in the UK and OATei rolling out of the index for the Eurozone. For the UK FTSE Actuaries gilt indices, August will be a comparatively quiet month with only four auctions scheduled. - Barcap European Month-End Index Extensions: Europe +0.13 years, UK +0.08 years.
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