Market Outlook - BNP PARIBAS - Investment Services India

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Inflation: BEs Collapsing in Europe • GLOBAL: Weak but key data looming. • EUR: Bearish. 2/10y BE Steepener. • USD: Favour 10y TIPS (BE) into month-end. • GBP: Further BE curve post UKTi-40. Chart 1: Jan Surprising to Downside in Europe 0.60% Richen Jul 2009 2008 2007 2006 2005 0.40% 2004 2003 2002 2001 0.20% 0.00% -0.20% -0.40% Cheapen Apr & Sep GLOBAL: Equities and commodities are lower as the -1.00% Maturities flight to quality intensifies on weak economic data Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (US new home sales and UK GDP), unprecedented Chart 2: 2/10y BE Curve Too Flat at Fwds widening of Greek bond spreads and further inflation 120 80 supply. Breakevens are down everywhere with BTPEI12 / OATI17 Breakeven 100 100 OATI17 Breakeven Rhs Europe underperforming sharply following very weak 120 80 German preliminary CPI data. Oil fell to USD 73/bbl, 140 60 shrugging off bullish DoE inventory data. After a less 160 dovish FOMC, the State of Union address triggered a 40 180 mild consolidation in risky assets. We maintain our 200 20 negative call on rich EUR breakevens, and still 220 0 favour GBP and USD breakevens at least up to 10y 240 -20 1-Apr Fwd Not maturities. Focus on key economic data next week Priced! 260 including US Q4 GDP, NFP, ISM. -40 280 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 EUR: Collapsing breakevens across maturities. German preliminary HICP printed -0.7% m/m vs. Charts source: Bloomberg, BNP Paribas -0.4% consensus due to very weak core inflation and despite higher food inflation. The trend of increased EUR 650mn BTPei-41 re-opening was better January discounting (Chart 1) intensified – German received (premium of 38 cents, bid/cover at 1.84). discounts were nearly twice those of recent years. USD: 7y+ breakevens have been remarkably We expect the deceleration in core to materialise in resilient given the broader flight to quality. The front other countries in Jan due to similar discount end may remain volatile – we stay bearish. The TIPS practices and limited ability to increase administered Jan-11 is not suffering from its drop out of the TIPS prices (unlike most years) but to be less pronounced Index. Historically, this is usually priced in advance – than the surprise in Germany. We now expect Jan the Jan-11 has looked the cheapest front TIPS vs. HICP Ex-tob at 107.88, -0.67% m/m implying very our forecasts for some months. That said, any negative carry in the month of March. At the 2y point, significant concession would represent a buying 1-April BE forwards are close to the top of their 9m opportunity. 10y TIPS should benefit from index range when upcoming negative carry, deflationary extension bid (+0.20y) and inflows into the product at news, widening of peripherals and risk averse asset end-January, particularly ahead of new 30y TIPS markets suggest they should be closer to their 9m issuance in February which should keep 15y+ TIPS lows. This is typically priced in February and frontend suppressed. Whilst TIPS Jan-20/Jan-25 BE spread (2-5y) BEs have exhibited negative total returns looks quite flat at +5bp, it could invert into the 30y in both Jan and Feb in four of the past five years. We supply. stay negative on front-end EUR BEs. Meanwhile, the 10y remains depressed in the cash inflation curve GBP: Breakevens under pressure as UKTi-40 with the EUR 1.052bn BTPei-17 tap weighing. It syndication failed to impress triggering volatility at the came with a premium of only 3 cents, bid/cover of long end. The size of the book was just above GBP 1.58). The 2/10y BE curve remains way too flat esp. 4bn – less than half that of 2009’s linker syndications on a forward basis – we keep our BTPei-12/OATi-19 and GBP 3.5bn was issued compared to GBP 5bn BE steepener. The trade has 10-20bp further for both UKTi-42 and -50 in Q3 2009. The UKTi-40 potential (1-Apr in negative territory!). The negative came at UKTi-37 RY – 3bp, in the middle of our fair Jan surprise is worth 5-10bp in itself and the recent value range but not rich. Investors seem concerned widening in peripheral/core nominal spreads has not by the prospect of increased linker issuance in FY yet been fully reflected in real spreads, leaving BTPei 10/11 whilst the lack of a RY concession since the BEs richer across the curve. Long-end breakevens coupon fixing did not help. We continue to favour also suffered early in the week although the smaller shorter maturities (up to 10y) and favour a flatter inflation curve ahead. Shahid Ladha / Herve Cros 29 January 2010 Market Mover, Non-Objective Research Section 44 www.GlobalMarkets.bnpparibas.com -0.60% -0.80%
Pricing Date Repo Rate EUR DRI FRF DRI Sett. Date Table 1: BNP Paribas Carry Analysis Real BE Real BE Real BE Real BE Real BE Real BE BTANEI Jul-10 -1.65% 2.02% 35.0 35.5 -218.4 -216.0 -180.3 -173.9 - BTPEI Sep-10 -0.78% 1.57% 38.2 33.5 -124.7 -135.6 -55.6 -74.9 168.9 111.8 - - OATEI Jul-12 -0.23% 1.52% 10.7 7.3 -21.4 -28.7 -3.2 -14.9 25.0 1.3 23.4 -18.0 BTPEI Sep-12 0.45% 1.76% 12.1 6.6 -15.5 -27.6 4.3 -15.0 39.2 -1.6 64.0 -23.9 BOBLEI Apr-13 0.32% 1.26% 9.7 6.4 -13.5 -20.6 2.2 -9.1 28.2 5.1 40.9 -1.5 BTPEI Sep-14 1.10% 1.67% 8.1 3.7 -6.4 -15.9 6.2 -8.9 29.0 -2.3 48.4 -13.5 OATEI Jul-15 0.80% 1.69% 6.3 2.9 -6.3 -13.5 3.7 -7.7 20.8 -1.9 31.9 -11.7 BUNDEI Apr-16 0.92% 1.59% 5.8 2.8 -5.2 -11.6 3.8 -6.3 19.2 -1.1 29.9 -8.6 BTPEI Sep-17 1.75% 1.78% 5.8 2.0 -2.4 -10.6 6.2 -6.6 22.3 -3.8 38.1 -12.5 BTPEI Sep-19 2.10% 1.92% 5.0 1.5 -1.3 -8.8 6.1 -5.6 20.2 -3.3 34.9 -11.3 BUNDEI Apr-20 1.42% 1.77% 4.1 1.6 -2.4 -7.7 3.7 -4.6 14.6 -2.1 23.6 -8.1 OATEI Jul-20 1.51% 1.94% 4.1 1.3 -2.3 -8.3 4.0 -5.5 15.2 -3.8 24.6 -11.7 BTPEI Sep-23 2.39% 2.08% 4.0 0.9 -0.6 -7.2 5.2 -5.2 16.2 -4.8 28.1 -12.2 GGBEI Jul-25 4.93% 2.06% 5.5 0.2 2.8 -8.4 10.5 -6.8 27.2 -7.6 50.5 -19.8 GGBEI Jul-30 4.90% 2.28% 4.3 -0.7 2.2 -8.5 8.2 -8.4 21.2 -12.5 39.0 -29.4 OATEI Jul-32 1.81% 2.29% 2.4 0.4 -1.0 -5.3 2.6 -4.1 9.2 -4.2 14.9 -10.5 BTPEI Sep-35 2.35% 2.51% 2.3 0.0 -0.4 -5.5 3.0 -4.9 9.4 -6.5 16.0 -14.4 OATEI Jul-40 1.80% 2.36% 1.7 0.1 -0.7 -4.3 1.9 -3.7 6.5 -4.3 10.5 -9.9 BTPEI Sep-41 2.61% 2.32% 2.2 0.0 -0.1 -4.8 3.0 -4.2 9.0 -5.4 15.4 -12.4 FRF OATI Jul-11 -0.57% 1.37% 11.6 8.8 0.0 -6.1 27.7 17.6 44.0 23.8 10.2 17.3 OATI Jul-13 0.07% 1.69% 6.4 2.9 3.2 -4.3 16.0 4.1 26.1 2.0 29.0 -16.0 OATI Jul-17 1.05% 1.92% 4.0 0.9 3.7 -3.0 10.7 0.2 18.5 -2.3 27.0 -12.8 OATI Jul-19 1.36% 1.98% 3.5 0.6 3.5 -2.8 9.5 -0.4 16.6 -2.9 25.1 -12.2 OATI Jul-23 1.70% 2.15% 2.8 0.4 3.1 -2.2 7.9 -0.4 13.9 -2.7 21.5 -10.2 OATI Jul-29 1.77% 2.30% 2.3 0.0 2.5 -2.3 6.3 -1.2 11.1 -3.5 17.1 -10.7 USD Pricing Date Repo Rate USD DRI Sett. Date 28-Jan-10 108.29179 118.32036 02-Feb-10 28-Jan-10 216.31519 29-Jan-10 EUR Term 1 Term 2 3m 6m 0.39% 0.40% 0.41% 0.50% 108.61000 107.88256 108.39167 109.20726 118.60000 118.51495 119.00967 119.46301 01-Mar-10 01-Apr-10 03-May-10 02-Aug-10 Term 1 0.13% 215.94900 01-Mar-10 Term 2 0.13% 216.97541 01-Apr-10 12m 0.80% 109.78565 120.02061 02-Feb-11 3m 6m 12m 0.14% 0.20% 0.41% 217.71853 220.52829 220.34043 29-Apr-10 29-Jul-10 31-Jan-11 Yield BE Real BE Real BE Real BE Real BE Real BE TIPS Apr-10 -1.10% 1.15% -221.8 -216.3 244.8 281.4 - - - - - - TIPS Jan-11 -0.93% 1.24% -29.9 -31.7 15.5 11.7 53.8 47.8 301.1 288.9 - - TIPS Apr-11 -0.71% 1.17% -21.7 -24.2 15.7 10.3 45.8 37.6 209.7 192.0 358.5 339.3 TIPS Jan-12 -0.47% 1.36% -12.0 -15.5 11.6 4.3 29.7 18.8 112.8 89.1 105.4 56.4 TIPS Apr-12 -0.35% 1.37% -10.1 -13.8 11.2 3.5 27.3 15.9 98.7 74.4 92.0 40.9 TIPS Jul-12 -0.38% 1.50% -9.3 -12.8 9.7 2.3 24.0 13.0 86.5 62.9 75.2 26.9 TIPS Apr-13 -0.15% 1.68% -6.3 -10.2 8.5 0.3 19.6 7.4 65.3 40.1 58.5 6.0 TIPS Jul-13 0.04% 1.63% -5.4 -9.5 9.0 0.7 19.9 7.6 64.5 38.6 62.0 8.6 TIPS Jan-14 0.30% 1.62% -4.1 -8.3 9.1 0.6 19.2 6.7 59.6 33.3 61.4 7.3 TIPS Apr-14 0.26% 1.81% -3.9 -8.1 8.3 -0.2 17.6 5.0 54.3 28.4 54.5 0.7 TIPS Jul-14 0.42% 1.71% -3.4 -7.6 8.6 0.1 17.7 5.2 53.9 27.7 56.3 2.7 TIPS Jan-15 0.59% 1.78% -2.8 -7.0 8.3 -0.3 16.8 4.0 49.8 23.3 53.7 -0.4 TIPS Jul-15 0.67% 1.92% -2.4 -6.7 7.9 -0.8 15.7 2.9 46.1 19.5 50.1 -4.1 TIPS Jan-16 0.82% 1.95% -2.0 -6.3 7.7 -1.0 15.1 2.4 43.6 17.2 48.6 -5.2 TIPS Jul-16 0.88% 2.06% -1.8 -6.1 7.4 -1.3 14.4 1.7 41.3 14.9 46.2 -7.2 TIPS Jan-17 0.99% 2.11% -1.5 -5.7 7.2 -1.4 13.8 1.3 39.1 13.2 44.4 -7.9 TIPS Jul-17 1.05% 2.19% -1.4 -5.5 6.9 -1.5 13.3 0.9 37.2 11.7 42.5 -9.0 TIPS Jan-18 1.13% 2.25% -1.1 -5.1 6.5 -1.6 12.4 0.5 34.4 10.1 39.6 -9.4 TIPS Jul-18 1.18% 2.30% -1.0 -5.0 6.2 -1.9 11.7 -0.1 32.4 8.2 37.4 -11.2 TIPS Jan-19 1.23% 2.35% -0.9 -4.7 6.2 -1.4 11.6 0.5 31.8 9.2 37.1 -8.4 TIPS Jul-19 1.29% 2.36% -0.8 -4.6 5.9 -1.7 11.0 -0.1 30.2 7.5 35.4 -10.1 TIPS Jan-20 1.33% 2.33% -0.7 -4.4 5.6 -1.9 10.4 -0.5 28.4 6.4 33.4 -10.8 TIPS Jan-25 1.83% 2.39% -0.2 -3.7 4.8 -2.4 8.6 -1.8 22.6 1.4 28.0 -14.1 TIPS Jan-26 1.88% 2.43% -0.1 -3.5 4.5 -2.2 8.1 -1.7 21.1 1.3 26.2 -12.9 TIPS Jan-27 1.92% 2.42% -0.1 -3.4 4.4 -2.2 7.9 -1.7 20.6 1.1 25.7 -12.9 TIPS Jan-28 1.95% 2.43% -0.1 -3.3 4.1 -2.4 7.3 -2.1 18.9 0.2 23.6 -13.6 TIPS Apr-28 1.99% 2.44% -0.1 -3.1 4.5 -1.6 8.1 -0.8 21.0 2.8 26.4 -9.4 TIPS Jan-29 1.97% 2.48% -0.1 -3.1 4.1 -1.9 7.3 -1.4 19.1 1.4 23.9 -11.2 TIPS Apr-29 1.99% 2.45% -0.1 -3.1 4.4 -1.6 7.9 -0.9 20.3 2.6 25.6 -9.4 TIPS Apr-32 1.97% 2.50% -0.1 -2.9 3.8 -1.9 6.8 -1.5 17.6 0.8 22.1 -11.2 GBP Pricing Date Repo Rate Sett. Date 28-Jan-10 Term 1 0.49% 29-Jan-10 01-Mar-10 Term 2 0.50% 01-Apr-10 Yield BE Real BE Real BE Real BE Real BE Real BE UKTi Aug-11 -1.04% 1.70% -28.1 -29.6 -3.6 -6.7 34.0 29.0 94.8 84.2 541.4 656.4 UKTi Aug-13 -0.26% 2.44% -10.4 -15.1 2.5 -7.0 20.0 6.1 47.5 18.2 87.3 26.2 UKTi Jul-16 0.54% 2.77% -4.7 -9.0 3.7 -4.8 14.5 2.0 32.3 6.7 57.8 5.6 UKTi Nov-17 0.65% 3.01% 9.4 5.2 5.6 -2.6 12.2 0.2 31.9 7.3 51.6 1.9 UKTi Apr-20 0.96% 3.01% -2.7 -6.5 3.2 -4.3 10.5 -0.4 23.0 0.8 41.0 -3.6 UKTi Nov-22 1.02% 3.33% 6.4 3.2 4.2 -2.0 8.7 -0.3 21.9 3.6 35.3 -1.0 UKTi Jul-24 1.11% 3.24% -1.9 -5.0 2.6 -3.6 8.1 -1.0 17.5 -0.8 30.6 -5.7 UKTi Nov-27 0.99% 3.37% 4.5 1.9 2.9 -2.4 6.1 -1.7 15.4 -0.4 24.5 -6.6 UKTi Jul-30 0.98% 3.38% -1.6 -3.9 1.9 -2.7 6.2 -0.5 13.5 -0.2 23.3 -3.4 UKTi Nov-32 0.85% 3.51% 3.6 1.3 2.2 -2.4 4.7 -2.1 11.9 -1.8 18.6 -8.1 UKTi Jan-35 0.81% 3.57% -1.3 -3.5 1.3 -3.0 4.5 -1.7 9.7 -2.8 16.5 -8.1 UKTi Nov-37 0.71% 3.64% 2.9 0.9 1.7 -2.4 3.8 -2.3 9.5 -2.6 14.7 -8.9 UKTi Nov-42 0.61% 3.72% 2.3 0.4 1.4 -2.4 3.0 -2.6 7.5 -3.6 11.5 -10.1 UKTi Nov-47 0.50% 3.78% 2.1 0.3 1.2 -2.4 2.6 -2.6 6.6 -3.7 9.9 -10.0 UKTi Mar-50 0.49% 3.78% 1.9 0.2 1.0 -2.3 2.3 -2.6 6.0 -4.0 9.0 -10.2 UKTi Nov-55 0.46% 3.75% 1.9 0.3 1.0 -2.1 2.3 -2.3 5.9 -3.3 8.8 -9.0 JPY Pricing Date Repo Rate JPY DRI Sett. Date 28-Jan-10 99.952 02-Feb-10 Term 1 0.12% 99.700 10-Mar-10 Term 2 0.12% 99.300 10-Apr-10 3m 0.13% 98.953 06-May-10 6m 0.13% 98.674 02-Aug-10 12m 0.14% 99.100 02-Feb-11 Yield BE Yield BE Yield BE Real BE Real BE Real BE JGBI-1 Mar-14 1.31% -0.92% -4.7 -5.4 -12.8 -14.1 -18.9 -20.7 -20.8 -24.5 8.3 0.0 JGBI-2 Jun-14 1.27% -0.84% -4.4 -5.2 -12.1 -13.5 -17.8 -19.8 -19.8 -23.8 6.5 -2.3 JGBI-3 Dec-14 1.34% -0.85% -3.8 -4.6 -10.4 -11.9 -15.4 -17.5 -16.6 -20.8 7.6 -1.7 JGBI-4 Jun-15 1.41% -0.84% -3.3 -4.2 -9.1 -10.7 -13.4 -15.7 -14.1 -18.6 8.3 -1.7 JGBI-5 Sep-15 1.30% -0.70% -3.4 -4.3 -9.2 -10.9 -13.5 -15.9 -14.7 -19.4 5.5 -4.9 JGBI-6 Dec-15 1.36% -0.72% -3.1 -4.1 -8.6 -10.4 -12.7 -15.1 -13.5 -18.4 6.4 -4.3 JGBI-7 Mar-16 1.40% -0.71% -3.0 -4.0 -8.2 -10.0 -12.0 -14.6 -12.6 -17.7 6.9 -4.3 JGBI-8 Jun-16 1.53% -0.80% -2.6 -3.7 -7.5 -9.4 -11.0 -13.7 -10.9 -16.2 9.1 -2.4 JGBI-9 Sep-16 1.46% -0.69% -2.7 -3.8 -7.5 -9.4 -11.0 -13.7 -11.3 -16.7 7.3 -4.3 JGBI-10 Dec-16 1.48% -0.67% -2.6 -3.6 -7.2 -9.2 -10.5 -13.3 -10.7 -16.3 7.3 -4.7 JGBI-11 Mar-17 1.54% -0.69% -2.4 -3.5 -6.8 -8.8 -9.9 -12.8 -9.8 -15.5 8.2 -4.0 JGBI-12 Jun-17 1.61% -0.72% -2.2 -3.3 -6.3 -8.4 -9.3 -12.2 -8.8 -14.7 9.0 -3.4 JGBI-13 Sep-17 1.60% -0.66% -2.2 -3.3 -6.2 -8.3 -9.1 -12.1 -8.8 -14.7 8.4 -4.2 JGBI-14 Dec-17 1.62% -0.64% -2.0 -3.2 -5.9 -8.1 -8.7 -11.8 -8.3 -14.3 8.6 -4.3 JGBI-15 Mar-18 1.66% -0.64% -2.0 -3.2 -5.8 -8.0 -8.5 -11.5 -8.0 -14.1 8.7 -4.2 JGBI-16 June-18 1.73% -0.67% -1.8 -3.1 -5.4 -7.7 -8.0 -11.2 -7.2 -13.5 9.5 -3.9 Shahid Ladha / Herve Cros 29 January 2010 Market Mover, Non-Objective Research Section 45 www.GlobalMarkets.bnpparibas.com 3m 0.49% 29-Apr-10 6m 0.53% 29-Jul-10 12m 0.77% 31-Jan-11
Page 1 and 2: Market Economics | Interest Rate St
Page 3 and 4: GGBs and other peripherals will rem
Page 5 and 6: The subtle changes in the wording o
Page 7 and 8: US: Get It While You Can • As the
Page 9 and 10: 500,000, the months-supply level of
Page 11 and 12: France: Roaring Consumption • Ret
Page 13 and 14: should be particularly true for the
Page 15 and 16: UK Inflation: Bridging the Gap •
Page 17 and 18: eceive roughly 60/40 weight within
Page 19 and 20: 1.2% m/m in November, partly offset
Page 21 and 22: or absence of competitors in a spec
Page 23 and 24: Japan: Polarisation in Machine Tool
Page 25 and 26: Australia: The Next Step • Data r
Page 27 and 28: US: Post-FOMC Treasury Market Overv
Page 29 and 30: US: Rolling Down the Agency Spread
Page 31 and 32: US: Poor Housing Underscores MBS Su
Page 33 and 34: Fannie Mae has not discussed the in
Page 35 and 36: EUR: Timing the 20Y Point • The l
Page 37 and 38: EUR 3-5bn (new 10y) in February? Co
Page 39 and 40: JGBs: Supply Continues to Weigh •
Page 41 and 42: Table 1: BNP Paribas' Inflation For
Page 43: Table 3: BNP Paribas' Inflation For
Page 47 and 48: CNY: Revaluation and FX Reserves
Page 49 and 50: domestic-demand led one is underway
Page 51 and 52: USD Bullish Signals • USD Trade W
Page 53 and 54: Currency Spot Trade Recommendations
Page 55 and 56: Economic Calendar: 29 Jan - 5 Feb (
Page 57 and 58: Key Data Preview Chart 3: Japanese
Page 59 and 60: Key Data Preview Chart 7: Change in
Page 61 and 62: Key Data Preview Chart 11: US PMI M
Page 63 and 64: Key Data Preview Chart 15: US Non-F
Page 65 and 66: Economic Calendar: 8 February - 5 M
Page 67 and 68: Next week's T-Bills Supply Date Cou
Page 69 and 70: Economic Forecasts GDP Year 2009 20
Page 71 and 72: Market Coverage Market Economics Pa

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