HALISTER1: EU RATES ROUNDUP: Peripheral Spread Tightening After Quarter-End

EU RATES ROUNDUP: Peripheral Spread Tightening After Quarter-End

(Bloomberg) -- Analysts focus on peripheral tightening after quarter-end amid large negative net EGB supply for April.
  • Commerzbank (strategists including Michael Leister)
    • EGB spreads should continue to grind tighter amid heavy reinvestment needs in 2Q, and as rising QE purchases push net supply deep into negative territory
    • Target new lows in 10y BTP/Bund spreads given political risks and rating jitters elsewhere: MORE
  • HSBC (strategists including Chris Attfield)
    • If seasonality argument holds, expect month-end peripheral weakeness due to a combination of balance sheet finessing by banks going into the end of the quarter and regular month-end weakness
    • Peripheral spreads, particularly Italy, should rally at the start of April
  • UBS (strategists including Justin Knight)
    • Good value in being overweight 25y-30y France vs Germany given upcoming supportive factors
    • Any concept of new carry trades as a result of LTRO-II is misplaced; banks already cash rich, expect limited take-up: MORE
  • BNP Paribas (strategists including Eric Oynoyan)
    • Expect tighter 10y semi-core amid the massive rise in net negative supply in April
    • Expect OAT/Bund 25y and ATS/Bund 20y to compress to 26bp and 25bp respectively
    • Receive 10y in the EUR 2s10s30s swap fly
  • Barclays (strategists including Cagdas Aksu)
    • Expect some support to duration over the coming weeks given negative net issuance, especially if risky assets do not hold up in the near term
    • Bund sell-off that started in late April last year showed how market rallies driven by supply/demand mismatch concerns can quickly reverse, especially given that the displacement effect becomes much less friendly for duration in May
    • Remain neutral in peripheral spreads for now and look for tactical short periphery trades into the referendum: MORE
  • UniCredit (strategists including Michael Rottmann)
    • Expect a modest bear-steepening of EGB curves with the front-end stable; Long-end of EGB curves may see some spillover from the positive U.S. environment
    • Peripheral spreads likely to resume tightening trend with a favorable seasonal pattern after the end of the quarter
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Michael Leister (Commerzbank AG)
Cagdas Aksu (Barclays PLC)
Chris Attfield (HSBC Securities Inc)
Eric Oynoyan (BNP Paribas SA)
Justin Knight (UBS Global Asset Management Japan Ltd)

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