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

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Next week's T-Bills Supply Date Country Issues Details 16/07 UK T-Bills Aug 2010 GBP 1bn T-Bills Oct 2010 GBP 1.5bn T-Bills Jan 2011 GBP 1.5bn Canada T-Bill Aug10 (Cash Mgt) CAD 1.5bn 19/07 France BTF Sep 2010 EUR 1.5bn BTF Oct 2010 EUR 4.5bn BTF Jan 2011 EUR 2.5bn Germany Bubills Apr 2011 EUR 2bn Neths DTC Oct 2010 EUR 1.5-3bn DTC Nov 2010 EUR 1.5-3bn DTC Mar 2011 EUR 1-2.5bn US T-Bills Oct 2010 USD 30bn T-Bills Jan 2011 (new) USD 30bn FHLMC Bills 3-month & 6-month 16 Jul 20/07 Japan T-Bills Sep 2010 JPY 2.5tn Spain Letras Jul 2011 19 Jul Letras Dec 2011 19 Jul Canada T-Bill Oct 2010 CAD 7.4bn T-Bill Jan 2011 CAD 2.8bn T-Bill Jul 2011 CAD 2.8bn US T-Bills 4-week 19 Jul FHLB Discount Notes 21/07 Japan T-Bills Oct 2010 JPY 4.8tn Portugal BT Jul 2011 (new) EUR 1.25bn FNMA Bills 3-month & 6-month 19 Jul 22/07 Ireland T-Bills 20 Jul FHLB Discount Notes 23/07 UK T-Bills 16 Jul Sources: Treasuries, BNP Paribas Next week's Eurozone Redemptions Date Country Details Amount 19/07 Austria ATB (EU20) EUR 0.2bn 19/07 Austria ATB (EU16) EUR 0.1bn 20/07 Austria ATB EUR 0.7bn 21/07 Finland T-Bills EUR 0.7bn 22/07 France BTF EUR 8.5bn 23/07 Spain Letras EUR 7.6bn 23/07 Greece GTB (13W) EUR 2.4bn 23/07 Portugal BT EUR 4.5bn Total Eurozone Short-term Redemption EUR 24.7bn Next week's Eurozone Coupons Country Amount Greece EUR 2.4bn Total Long-term Coupon Payments EUR 2.4bn Interest Rate Strategy 16 July 2010 Market Mover, Non-Objective Research Section 66 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 0.50 NORWAY Sight Deposit Rate 2.00 SWITZERLAND 3 Mth LIBOR Target Range CANADA 0.0-0.75 Overnight Rate 0.50 Bank Rate 0.75 AUSTRALIA Cash Rate 4.50 CHINA 1Y Bank Lending Rate BRAZIL 5.31% Selic Overnight Rate 10.25 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 (1/7/10) +25bp (5/5/09) -25bp (12/3/09) +25bp (1/6/10) +25bp (1/6/10) +25bp (5/5/10) -27bp (22/12/08) +75bp (09/6/10) Source: BNP Paribas Next Change in Coming 6 Months No Change No Change No Change No Change No Change No Change No Change +25bp (2/9/10) +25bp (15/12/10) No Change +25bp (20/7/10) +25bp (20/7/10) +25bp (2/11/10) No Change +75bp (21/7/10) Comments The uneven, lacklustre recovery and low inflation pressures imply no rise in the refinancing rate for a considerable period of time. 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 provision 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 central bank to draw on its FX reserves to defend the currency, given the recent up-tick in EUR/DKK. If this proves unsuccessful, policy rates will likely be raised. Given strong domestic demand, increases in employment and re-accelaration in house prices, we expect the Riksbank to deliver its second rate hike in this cycle in September. Weaker-than-expected growth since the start of the year and uncertainty over Norway’s economic outlook due to developments elsewhere in Europe suggest further rate hikes will come gradually. We expect the next hike in December. Rates are looking inappropriate given the strength of the domestic economy. But we expect the first hike to be delayed to early 2011 by an intensification of the fiscal and financial stress in the markets over the coming months. Barring a re-intensification of global financial troubles, we expect the BoC to deliver an additional 0.75bp of tightening over H2 2010. The BoC is then expected to pause at 1.25% to re-assess the situation. The RBA noted in its June statement that policy was appropriate for the “near term”. This appears to rule out any move in the coming months, especially in the context of volatility in global markets. However, likely strong Q2 growth should be enough to prompt a hike late in the year. Significant monetary tightening has slowed credit growth and boosted money market rates while both economic growth and inflation are decelerating; the eurozone sovereign crisis is further clouding the export outlook. As all these factors call for policy flexibility, we no longer expect further hikes in the RRR or any interest rate hikes in 2010. Given the robust recovery in domestic demand, the very low level of economic slack, still-elevated inflation expectations and relatively loose fiscal policy, the BCB should continue to tighten monetary conditions with bold hikes. Change since our last weekly in bold and italics For the full EMK Central Bank Watch please see our Local Markets Mover Market Economics 16 July 2010 Market Mover 67 www.GlobalMarkets.bnpparibas.com
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Market Economics | Interest Rate St
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2-10s receivers attractive in the 1
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arrest the slow growth dynamic we s
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US Housing: A Cold Summer • After
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we expect residential investment to
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ebounded from -13% y/y to +8%. That
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At first glance, this latest develo
Page 15 and 16: But property prices have barely cor
Page 17 and 18: political leaders persuaded the pub
Page 19 and 20: …average fiscal multiplier is 1,
Page 21 and 22: US: 10y Range Trade with a Receiver
Page 23 and 24: give-up because we’re switching f
Page 25 and 26: term structure models mentioned bel
Page 27 and 28: swaps. The overall volume of USD 9.
Page 29 and 30: EUR: Deflation Macro Hedge Via Opti
Page 31 and 32: EUR: SAS Diversification to Enhance
Page 33 and 34: Global Inflation Watch June CPI in
Page 35 and 36: Table 2: BNP Paribas' Inflation For
Page 37 and 38: Inflation: Sell 30y in the UK & US
Page 39 and 40: GBP: Market Downplays Shift to CPI
Page 41 and 42: averaging introduces sizable upside
Page 43 and 44: Europe ITraxx Credit Indices • Ou
Page 45 and 46: SEN vs. SUB There has been no stron
Page 47 and 48: Technical Analysis - Interest Rates
Page 49 and 50: Trade Reviews Options, Money Market
Page 51 and 52: should not come as a complete surpr
Page 53 and 54: EUR/USD Rally Sets Sights on 1.3000
Page 55 and 56: Currency Spot Trade Recommendations
Page 57 and 58: Economic Calendar: 16 - 23 July (co
Page 59 and 60: Key Data Preview Chart 3: US Housin
Page 61 and 62: Key Data Preview Chart 8: French Hh
Page 63 and 64: Key Data Preview Chart 11: UK GDP v
Page 65: Treasury and SAS Issuance Calendar
Page 69 and 70: FX Forecasts* USD Bloc Q3 '10 Q4 '1
Page 71: RESEARCH DISCLAIMERS: IMPORTANT DIS
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