HALISTER1: EGB Spreads May Face Sustained Tightening Pressure: Commerzbank

EGB Spreads May Face Sustained Tightening Pressure: Commerzbank

(Bloomberg) -- ECB QE increase will push remaining net supply deeply into negative territory, with PSPP purchases also fully absorbing gross supply from core issuers, triggering sustained tightening pressure on spreads, writes Commerzbank strategist Michael Leister, in a client note.
  • Netherlands’s strong fundamentals and ratings outlook looks particularly attractive for strategic convergence vs bunds
  • Reiterate overweights within core and recommend using the upcoming 10y DDA to increase longs vs 10y RAGBs and RFGBs
  • Expect EGB and agency purchases to rise by EU16b, given the EU20b increase in monthly QE volumes; combined with falling issuance following the usual front-loading in 1Q, QE- adjusted net supply will be deeply negative
    • PSPP purchases, coupons and redemptions will exceed projected issuance by ~EU165b in 2Q which is more than four times the negative QE-adjusted net flow during 1Q
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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2539Z GR (European Central Bank)

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Michael Leister (Commerzbank AG)

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