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

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Next Week's T-Bills Supply Date Country Issues Details 07/05 Japan T-Bills Aug 2010 JPY 5.4tn UK T-Bills Jun 2010 GBP 1bn T-Bills Aug 2010 GBP 1.5bn T-Bills Nov 2010 GBP 1.5bn 10/05 France BTF Aug 2010 EUR 4bn BTF Nov 2010 EUR 2.5bn BTF May 2011 EUR 1.5bn Germany Bubills Nov 2010 (new) EUR 5bn US T-Bills Aug 2010 USD 26bn T-Bills Nov 2010 (new) USD 26bn FHLMC Bills 3-month & 6-month 7 May 11/05 Japan T-Bills Nov 2010 JPY 3.5tn Italy BOT May 2011 EUR 5.5bn Norway T-Bills Mar 2011 (NST 10) NOK 3bn Sweden T-Bills Aug 2010 SEK 10bn Canada T-Bill Aug 2010 CAD 6.8bn T-Bill Nov 2010 (new) CAD 2.6bn T-Bill May 2011 (new) CAD 2.6bn US T-Bills 4-week 10 May FHLB Discount Notes 12/05 Japan T-Bills Aug 2010 JPY 5.4tn FNMA Bills 3-month & 6-month 10 May 13/05 Ireland T-Bills 11 May FHLB Discount Notes 14/05 UK T-Bills 7 May Sources: Treasuries, BNP Paribas Next Week's Eurozone Redemptions Date Country Details Amount 11/05 Finland T-Bills EUR 2.5bn 12/05 Germany Bubills EUR 6.0bn 12/05 France BTF EUR 7.5bn 14/05 Italy BOT 12mth EUR 7.2bn Total Eurozone Short-term Redemption EUR 23.2bn 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 Chart 1: Investors’ Net Cash Flow (EUR bn, 10y equivalent) Net Investors' Cash Flows (EUR bn , 10y equivalent) Week of May 10th Week of May 17th Week of May 24th Week of May 31st Chart 2: EGB Gross Supply Breakdown by Country (EUR bn, 10y equivalent) Comments and charts 30 25 Germany Italy Portugal Belgium France Spain Netherlands Austria Finland Greece Ireland • EGB gross supply will increase to around EUR 19bn in the week ahead from EUR 13bn in the past week. In 10y duration-adjusted terms, supply will fall to EUR 11.2bn from EUR 12.8bn. • The Netherlands will re-open DSL Jan-15 for EUR 2-2.5bn on Tuesday, a week ahead of the launch of the new 30y DSL. Germany will launch a new Schatz Jun-12 for EUR 7bn on Wednesday while, on the same day, Portugal will also tap OT Jun-20 for an amount of EUR 0.3-1bn and this will be a crucial test given the current situation in peripheral markets. Finally, on Thursday, Italy will perform its end-of-month BTP auctions for an expected size of EUR 7-9bn. • Outside of the eurozone, the US will issue a total of USD 78bn of 3y, 10y and 30y notes. In the UK, Gilt Dec-27 will be re-opened for GBP 2.25bn and index-linked Gilt Nov-22 for GBP 1.1bn. Japan, Denmark and Canada will also issue paper. 30 25 20 15 10 5 20 15 10 5 0 Week of May 10th Week of May 17th Week of May 24th Week of May 31st Chart 3: EGB Gross Supply Breakdown by Maturity (EUR bn, 10y equivalent) 2-3-YR 5-7-YR 10-YR >10-YR EGBs Gross Supply (EUR bn, 10y equivalent) 0 Week of May 10th Week of May 17th Week of May 24th Week of May 31st All Charts Source: BNP Paribas Interest Rate Strategy 7 May 2010 Market Mover, Non-Objective Research Section 80 www.GlobalMarkets.bnpparibas.com
Central Bank Watch Interest Rate EUROZONE Current Rate (%) Minimum Bid Rate 1.00 US Fed Funds Rate 0 to 0.25 Discount Rate 0.75 JAPAN Call Rate 0.10 Basic Loan Rate 0.30 UK Bank Rate 0.5 DENMARK Lending Rate 1.05 SWEDEN Repo Rate 0.25 NORWAY Sight Deposit Rate 2.00 SWITZERLAND 3 Mth LIBOR Target Range CANADA 0.0-0.75 Overnight Rate 0.25 Bank Rate 0.50 AUSTRALIA Cash Rate 4.25 CHINA 1Y Bank Lending Rate BRAZIL 5.31% Selic Overnight Rate 9.50 Source: BNP Paribas Date of Last Change -25bp (7/5/09) -75bp (16/12/08) +25bp (18/2/10) -20bp (19/12/08) -20bp (19/12/08) -50bp (5/3/09) -10bp (14/1/10) -25bp (2/7/09) +25bp (5/5/09) -25bp (12/3/09) -25bp (21/4/09) -25bp (21/4/09) +25bp (6/04/09) -27bp (22/12/08) +75bp (28/4/10) Next Change in Coming 6 Months No Change No Change No Change No Change No Change No Change -5bp (May) +25bp (1/7/10) +25bp (22/9/10) +25bp (Sep) +25bp (1/6/10) +25bp (1/6/10) +25bp (4/5/10) +27bp (Q3) +75bp (9/6/10) Comments The combination of an insipid economic recovery and low inflation points to no conventional tightening, i.e. refi rate hikes, in 2010. The FOMC should maintain the funds rate at 0 to 0.25% for an extended period and will probably keep the discount rate where it is for now. The BoJ could expand its liquidity provisions further in order to cooperate with the government in countering deflation and the yen’s appreciation. We expect the MPC to reengage in asset purchases from August onwards. We expect the lending rate to fall further. The timing will depend on the krone and foreign exchange reserve developments. The Riksbank still intends to deliver its first hike in the summer or early autumn. We expect it in July. However, the Riksbank could wait until September if downside risks to foreign trade materialise, the krona appreciates more than expected and/or concerns about the fiscal situation in high-debt countries rise. We expect the next rate hike to be delivered in September, depending on economic developments, the krone and the level of uncertainty surrounding the Norwegian economic outlook due to developments in Europe. By relaxing its commitment to prevent currency appreciation, the SNB is de facto tightening policy and has kept the ball rolling towards an eventual increase in rates. The strong franc remains the biggest hurdle to the first hike. The BoC has removed its conditional commitment and noted that “it is appropriate to begin to lessen the degree of monetary stimulus”. We expect the BoC to begin tightening in June and to deliver 125bp of hikes before pausing to reassess the situation. The RBA is aiming to take the policy rate to an average level, which we view to be 4.50%. The next hike should come in May after which a pause is likely to assess the impact of policy tightening delivered thus far. The latest RRR hikes are likely to presage a series of more concrete measures to tighten policy. The first hike in key policy rates is expected in Q3 when the CPI rate is forecast to exceed 3%. However, given the authorities' rising caution about excess credit, an earlier move cannot be ruled out. Given the robust recovery in domestic demand and deterioration of inflation expectations, the BCB should continue to tighten monetary conditions. Change since our last weekly in bold and italics For the full EMK Central Bank Watch please see our Local Markets Mover Market Economics 7 May 2010 Market Mover 81 www.GlobalMarkets.bnpparibas.com
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Market Economics | Interest Rate St
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UK: all eyes on the election US: re
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Event response The ECB is being ove
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Eurozone Periphery: Compare and Con
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over 20% in Q1) and, last but not l
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Market Stress Charts • Signs of s
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Chart 7: Greek Bank CDS* 900 Greece
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• The plan also contains a number
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Germany: Downs and Ups • The impa
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Retail sales data from month to mon
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On inflation, the statement was als
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quarterly average of 2.7% in the fi
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US Credit: Still the Recovery’s B
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Japan: Rising Chance of Sales Tax H
Page 29 and 30: BNP Paribas Surprise Indicator •
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Page 33 and 34: US: Supply Could Affect Swap Spread
Page 35 and 36: steep curve is typically associated
Page 37 and 38: decline. We continue to maintain ou
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Page 41 and 42: the gamma sector for some time now.
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Page 49 and 50: Table 1: BNP Paribas' Inflation For
Page 51 and 52: Table 3: BNP Paribas' Inflation For
Page 53 and 54: Table 1: BNP Paribas Carry Analysis
Page 55 and 56: What’s the call? It is relatively
Page 57 and 58: Update on FIN SEN and FIN SUB 5/10y
Page 59 and 60: Germany 10y: Within MT falling wedg
Page 61 and 62: Judging Currencies by Liquidity •
Page 63 and 64: type of regulation would reduce mon
Page 65 and 66: Euro Dives • The euro is collapsi
Page 67 and 68: Currency Spot Trade Recommendations
Page 69 and 70: Economic Calendar: 7 - 14 May (cont
Page 71 and 72: Key Data Preview Chart 1: US Payrol
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Page 75 and 76: Key Data Preview Chart 9: French GD
Page 77 and 78: Key Data Preview Chart 13: US Indus
Page 79: Treasury and SAS Issuance Calendar
Page 83 and 84: FX Forecasts* USD Bloc Q2 '10 Q3 '1
Page 85: RESEARCH DISCLAIMERS: IMPORTANT DIS
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