Market Economics | Interest Rate Strategy - BNP PARIBAS ...

EMU Debt Monitor: Key RV Charts
Chart 3: Hedged 2012/2015/2019 BTP fly: 2015 BTPs Back
at Very Cheap Levels
Chart 4: 2013/2017 DSL/OAT box: 2013 like 2014 BTANs
Back at Expensive Levels
40
30
BTP 5y cheap
Top on BTP/bund
spread
20
15
BTAN July 13
expensive
20
10
Sharp BTP
rally
vs Bunds
10
5
0
0
-10
-20
BTP 5y rich
Active CBs
purchase
Sharp BTP sell-off
-30
May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11
Hedged 12/15/19 BTP Fly
BTPs 2015 are back at very cheap levels vs. 2012 and 2019
maturities (hedged fly back at 3 st dev). A similar result is seen on
the CDS basis. Such a cheap level implies that 2012/2015 BTP
steepeners now offer a very poor risk/reward profile.
Chart 5: 2013/2020 OLO/ATS Box: 2020 OLO Too
Expensive
50
40
30
20
10
0
-10
-20
-30
-40
Historical Average + 2.5 st dev
Historical Average - 2.5 st dev
-50
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11
Olo Sep 13/Oct 13/Sep 20/July 20
Last week, we stressed the decoupling between 2013 and 2020
OLO/ATS spreads. 2020 OLOs finally cheapened vs AAA paper
but the 2y/10y box is still far too high at around 2.5 SD above its
historical average (i.e. 2020 OLOs still too expensive).
-5
BTAN July 13
cheap
-10
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11
DSL/btan July 13/July 17/Oct 17
A new 3y DSL auction put some temporary pressure on
2013/2014 DSLs. As the 2013/2017 DSL/OAT box above shows,
the latter are now back at very cheap levels vs. 7y/10y maturities
(see Trade Ideas section).
Chart 6: 2020/2040 BTP/Bono Box: BTP 2040 Too Cheap
0
-5
-10
-15
-20
-25
-30
-35
BTP 2040 too expensive
-40
Jan-10 Mar-10 Jun-10 Sep-10 Nov-10
Bono/BTP 2020/2040 box
BTP 2040 too cheap
The 30y has continued to cheapen over the past week with the
10y/30y BTP/Bono box inverting more than 2.5 SD from the
historical average. The 2020/2040 BTP spread, now in mid 80s,
offers huge value for strategic flatteners targeting low 60s.
Chart 7: OFR/OTR OBL ASW History: OBL 159 Too Cheap
Chart 8: Peripherals 2/5s Spreads vs GER - 3m Range
10
300
250
Last
5
200
0
150
100
-5
50
-10
1 16 31 46 61 76 91 106 121 136
obl 152/153 obl 154/155 obl 153/154
obl 155/156 obl 156/157 Av OFR/OTR asw
obl 157/158
OBL 159 has recovered vs. OBL 158 with the spread falling from
14bp to 12.5bp but still offers good value. OBL 158 is still trading
too expensive on the curve (8bp richer than Jan 16). There is
value in switching from OBL 158 to 159, targeting 9bp.
All Charts Source: BNP Paribas
0
-50
GRE 2/5s IRE 2/5s POR 2/5s SPA 2/5s ITA 2/5s
We look at 5y spread vs GER - 2y spread vs GER (yields) across
all peripheral countries. Ireland looks too steep versus Greece
and Portugal. Greece is still below the middle of the 3m range on
restructuring fears. We think PGB/Bund 2/5s can steepen further.
Eric Oynoyan / Ioannis Sokos 13 January 2011
Market Mover, Non-Objective Research Section
34
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