Market Mover - BNP PARIBAS - Investment Services India

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Inflation: BEs Less Sensitive to Credit Fears? • GLO: Some value in BE, not ASW discounts. • EUR: 2y (OATei-12) BE rich, 10y fair/cheap. • USD: Neutral on BE. 30y supply could weigh. • GBP: Neutral on BE Level & curve into RPI. GLOBAL: Anticipation of a bailout of Greece has been supporting global asset markets since early in the week. Equity and commodity markets have retraced some of last week’s falls but remain volatile. As discussed during the initial EGB/sovereign CDS spread widening, breakevens and ASW discounts have been less sensitive to credit concerns than during other stress periods (Q4 ’08 and Mar ’09) like other asset classes, although they clearly remain a driving factor of sentiment. Accordingly, breakevens have rebounded somewhat in Europe but the move has been relatively muted. Sovereign credit spreads, asset markets and breakevens are likely to remain volatile as details of any bailout plan unfold. Given the improvement in sentiment, we are less negative on breakevens everywhere but still see limited value in ASW discounts, particularly in Europe (Chart 1). We prefer to focus on domestic factors including the strong negative carry on front-end linkers in EUR, supply and the Inflation Report in the UK and upcoming 30y supply in TIPS. Abrupt market moves have affected liquidity and accentuated relative value distortions, at least in Europe. EUR: Slightly flatter inflation curve with expectations of a bailout. Moves have been messy given the volatility in EGB spreads. There has been some evidence of EUR real spread tightening lagging their nominal counterparts. Ahead of the strong negative carry in March, 2y breakevens remain exposed especially the rich OATei-12. OATei-12 BE has massively outperformed BTPei-12 BE since the start of February and its 1-Apr BE fwd is (well) above its 10m high whilst OATei-20 BE spot is close to its low (or middle of the range for 1-Apr fwd). Assuming a coherent and consistent bailout plan, 10y breakevens should find support – BUNDei-20 and particularly BTPei-19 are still cheap vs. the OATei curve. Given the re-flattening in the inflation curve and RV considerations, selective 2/10y breakeven steepeners look attractive – OATei-12/BTPei-19 1-Apr BE spread at flat makes little sense given the steepness of global inflation curves. That said, the pricing in of March’s negative carry is typically complete by the end of February and the risk of BTPei-19 supply in late February remains. The 5y5y inflation forward via OATei-15/-20 has quickly corrected lower following its spike in late T 1: Moves Since 3 Feb (Pre-Peripheral ‘Crisis’) January/early February and is now more consistent with BTPei and inflation swap 5y5y forward breakevens. Final German HICP at -0.6% m/m exceeded the preliminary release but Italy’s CPI came in 0.1% lower. Focus on AFT linker auction on Thursday. Eurozone and FRF data late in the month. USD: Breakevens are up but marginally relative to last week’s tightening. With TIPS BEs looking relatively rich vs. equities, oil and Treasuries (based on relationship since April ’09), this is no surprise. Note, the very front-end (Jan-11) remains attractive vs. BNPP CPI forecasts. Looming 30y TIPS issue on 22 March will be a good test of institutional (LDI) demand which is not usually prevalent in the US. 10y+ TIPS should remain under pressure until the supply. CPI NSA expected at +0.5% m/m on Friday. GBP: Poor performance with real yields up 20bp+ and breakevens down by 5-12bp with 10-15y area underperforming. The concession ensured a strong GBP 900mn UKTi-22 tap (b/c of 2.42, premium of 0.5/1bp). The February BoE report was incredibly dovish on inflation. With SONIA repricing towards lower rates for longer (consistent with BNPP), we prefer to turn neutral on UK BEs (from bearish) given conflicting forces of lower base rates (direct RPI impact vs. inflationary impact) and into Jan RPI data which tend to surprise (usually to the downside). Shahid Ladha/ Herve Cros 12 February 2010 Market Mover, Non-Objective Research Section 30 www.GlobalMarkets.bnpparibas.com Description FTSE Global OIL Change since 03 Feb 2010 -2.8% -2.8% (bp) 2y 5y 10y 30y EUR NY (OATei) -6 -3 -4 -6 EUR NY (BTPei) -26 -8 -7 -5 USD NY -2 -4 -1 1 GBP NY -4 5 8 10 EUR BE (OATei) 2 -8 -10 -6 EUR BE (BTPei) -14 -3 -13 -5 USD BE -11 -10 -13 -12 GBP BE -11 -12 -13 -9 EUR ASW Disc. -6 1 0 0 GBP ASW Dis. -2 2 3 1 USD ASW Disc. 0 -4 5 5 DEM CDS 6 FRF CDS 10 ITL CDS -7 GRK CDS -60 GBP CDS -5 USD CDS 3 Chart 1: BTPei-17 BE, ASW Discount & ITL CDS 100 90 80 70 60 50 40 30 20 10 0 0.8 BTPei-17 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 Breakeven CDS 2.6 Discount 2.8 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 All Charts Source: BNP Paribas 220 200 180 160 140 120 100 80 60 40 20
Table 1: BNP Paribas Carry Analysis EUR Pricing Date 11-Feb-10 Term 1 Term 2 3m 6m 12m Repo Rate 0.37% 0.40% 0.41% 0.51% 0.76% EUR DRI 108.45679 108.61000 107.80400 108.49289 109.18747 110.05376 FRF DRI 118.46536 118.60000 118.41112 118.90539 119.48748 120.14912 Sett. Date 16-Feb-10 01-Mar-10 01-Apr-10 17-May-10 16-Aug-10 16-Feb-11 Real BE Real BE Real BE Real BE Real BE Real BE BTANEI Jul-10 -1.21% 1.55% 21.0 21.5 -247.5 -244.4 -191.3 -178.2 - BTPEI Sep-10 -0.54% 1.29% 20.1 18.0 -157.6 -165.0 -62.1 -80.4 179.0 124.0 - - OATEI Jul-12 -0.28% 1.53% 5.1 3.5 -30.6 -35.9 -6.6 -17.8 14.8 -7.6 29.3 -12.5 BTPEI Sep-12 0.37% 1.55% 5.7 3.5 -25.3 -33.0 0.9 -15.5 29.3 -4.9 68.5 -5.0 BOBLEI Apr-13 0.31% 1.20% 4.7 3.2 -21.1 -26.2 -0.1 -10.9 21.7 -0.2 47.6 5.9 BTPEI Sep-14 1.07% 1.57% 3.9 1.9 -12.4 -19.3 4.7 -9.8 24.4 -5.2 52.1 -7.7 OATEI Jul-15 0.83% 1.64% 3.1 1.4 -10.9 -16.4 2.8 -8.6 17.7 -5.1 36.1 -8.7 BUNDEI Apr-16 0.97% 1.54% 2.8 1.4 -9.4 -14.3 2.9 -7.2 16.5 -3.8 33.7 -5.8 BTPEI Sep-17 1.72% 1.68% 2.8 1.0 -6.5 -12.5 5.2 -7.2 19.5 -5.5 40.1 -9.2 BTPEI Sep-19 2.10% 1.77% 2.4 0.8 -4.8 -10.2 5.4 -5.8 18.1 -4.4 36.8 -8.0 BUNDEI Apr-20 1.45% 1.78% 2.0 0.8 -5.3 -9.4 3.1 -5.4 12.8 -4.2 25.6 -7.2 OATEI Jul-20 1.54% 1.90% 2.0 0.6 -5.1 -9.7 3.4 -6.1 13.5 -5.6 26.7 -10.4 BTPEI Sep-23 2.43% 1.93% 1.9 0.5 -3.2 -8.1 4.7 -5.4 14.8 -5.5 29.8 -9.7 GGBEI Jul-25 4.38% 1.59% 2.2 0.3 -1.4 -8.2 8.5 -5.5 22.6 -5.6 45.9 -11.5 GGBEI Jul-30 4.41% 1.72% 1.8 0.0 -1.0 -7.5 6.7 -6.7 17.8 -9.5 35.7 -19.7 OATEI Jul-32 1.78% 2.30% 1.1 0.2 -2.7 -5.9 2.2 -4.4 8.0 -5.3 15.5 -10.0 BTPEI Sep-35 2.32% 2.43% 1.1 0.0 -2.0 -5.7 2.6 -5.1 8.4 -7.0 16.5 -13.2 OATEI Jul-40 1.75% 2.37% 0.8 0.0 -1.9 -4.6 1.6 -3.9 5.7 -5.0 10.9 -9.5 BTPEI Sep-41 2.54% 2.28% 1.0 0.0 -1.6 -5.0 2.6 -4.3 7.9 -5.9 15.6 -11.4 FRF Source: BNP Paribas OATI Jul-11 -0.73% 1.45% 5.2 4.1 -14.4 -18.2 7.3 -1.0 25.6 10.7 -21.4 8.0 OATI Jul-13 0.01% 1.70% 3.0 1.4 -3.1 -8.7 8.9 -2.8 21.7 -1.7 28.1 -17.5 OATI Jul-17 1.06% 1.90% 1.9 0.4 0.4 -4.7 7.7 -2.7 17.1 -3.6 27.7 -12.9 OATI Jul-19 1.35% 2.00% 1.7 0.3 0.7 -4.1 7.0 -2.8 15.4 -4.2 25.4 -12.8 OATI Jul-23 1.69% 2.13% 1.4 0.2 0.9 -3.1 6.0 -2.2 13.0 -3.6 21.7 -10.2 OATI Jul-29 1.76% 2.27% 1.1 0.0 0.8 -2.9 4.8 -2.5 10.4 -4.1 17.2 -10.7 USD Pricing Date 11-Feb-10 Term 1 Term 2 3m 6m 12m Repo Rate 0.14% 0.15% 0.17% 0.21% 0.39% USD DRI 216.18032 215.94900 217.05358 218.14008 220.73697 220.20611 Sett. Date 12-Feb-10 01-Mar-10 01-Apr-10 12-May-10 12-Aug-10 14-Feb-11 Yield BE Real BE Real BE Real BE Real BE Real BE TIPS Apr-10 -1.74% 1.80% -157.4 -154.2 398.0 430.4 - - - - - - TIPS Jan-11 -0.97% 1.32% -18.3 -19.4 32.4 29.1 92.8 86.2 358.5 343.1 - - TIPS Apr-11 -0.76% 1.24% -13.4 -14.8 27.6 23.4 73.7 65.6 240.1 221.9 427.9 386.1 TIPS Jan-12 -0.50% 1.37% -7.5 -9.3 18.2 12.8 45.3 35.0 125.4 102.5 109.5 58.5 TIPS Apr-12 -0.38% 1.36% -6.3 -8.2 16.7 11.1 40.8 30.0 109.2 86.0 95.3 43.3 TIPS Jul-12 -0.42% 1.51% -5.8 -7.7 14.7 9.2 36.0 25.4 95.3 72.3 77.0 27.4 TIPS Apr-13 -0.20% 1.71% -4.0 -6.1 11.9 5.7 28.0 16.3 71.0 46.0 58.7 4.6 TIPS Jul-13 -0.03% 1.66% -3.5 -5.7 11.9 5.7 27.7 15.9 69.5 44.1 61.6 7.8 TIPS Jan-14 0.23% 1.64% -2.7 -4.9 11.3 5.0 25.9 13.9 63.6 38.1 60.6 6.8 TIPS Apr-14 0.20% 1.83% -2.6 -4.8 10.4 4.0 23.8 11.8 58.1 32.9 53.9 0.3 TIPS Jul-14 0.36% 1.72% -2.3 -4.5 10.5 4.1 23.7 11.7 57.5 32.1 55.9 2.8 TIPS Jan-15 0.57% 1.78% -1.9 -4.1 10.0 3.4 22.3 9.9 53.3 27.2 54.2 -0.1 TIPS Jul-15 0.64% 1.92% -1.6 -3.9 9.3 2.7 20.7 8.2 49.2 22.9 50.4 -4.1 TIPS Jan-16 0.83% 1.91% -1.3 -3.6 9.0 2.4 19.9 7.5 46.9 20.8 49.8 -4.1 TIPS Jul-16 0.89% 2.02% -1.2 -3.5 8.6 2.0 18.9 6.5 44.3 18.3 47.4 -6.3 TIPS Jan-17 1.04% 2.03% -1.0 -3.3 8.3 1.8 18.2 5.9 42.3 16.6 46.3 -6.5 TIPS Jul-17 1.09% 2.14% -0.9 -3.2 7.9 1.4 17.3 5.1 40.1 14.6 44.0 -8.2 TIPS Jan-18 1.19% 2.20% -0.8 -3.0 7.4 1.2 16.1 4.4 37.1 12.7 41.2 -8.6 TIPS Jul-18 1.24% 2.26% -0.7 -2.9 7.0 0.8 15.2 3.5 35.0 10.6 39.0 -10.6 TIPS Jan-19 1.33% 2.29% -0.6 -2.7 7.0 1.1 15.0 4.0 34.5 11.6 39.0 -7.6 TIPS Jul-19 1.38% 2.31% -0.6 -2.7 6.7 0.7 14.3 3.2 32.7 9.7 37.1 -9.5 TIPS Jan-20 1.43% 2.27% -0.5 -2.6 6.3 0.5 13.5 2.6 30.8 8.6 35.1 -10.3 TIPS Jan-25 1.96% 2.34% -0.2 -2.1 5.2 -0.4 10.9 0.4 24.4 2.8 29.5 -13.9 TIPS Jan-26 2.00% 2.39% -0.1 -2.0 4.8 -0.4 10.2 0.4 22.8 2.6 27.5 -12.9 TIPS Jan-27 2.05% 2.37% -0.1 -2.0 4.7 -0.4 10.0 0.3 22.3 2.4 27.0 -12.7 TIPS Jan-28 2.08% 2.38% -0.1 -1.9 4.4 -0.7 9.2 -0.3 20.5 1.4 24.9 -13.5 TIPS Apr-28 2.12% 2.38% -0.1 -1.8 4.9 0.1 10.2 1.2 22.7 4.2 27.8 -9.1 TIPS Jan-29 2.10% 2.42% -0.1 -1.8 4.4 -0.3 9.2 0.5 20.6 2.6 25.1 -10.9 TIPS Apr-29 2.12% 2.40% -0.1 -1.8 4.7 0.0 9.9 1.1 22.0 3.9 26.9 -9.1 TIPS Apr-32 2.11% 2.43% -0.1 -1.7 4.1 -0.4 8.6 0.2 19.1 2.0 23.3 -10.9 GBP Pricing Date 11-Feb-10 Term 1 Term 2 3m 6m 12m Repo Rate 0.51% 0.50% 0.53% 0.58% 0.75% Sett. Date 12-Feb-10 01-Mar-10 01-Apr-10 12-May-10 12-Aug-10 14-Feb-11 Yield BE Real BE Real BE Real BE Real BE Real BE UKTi Aug-11 -1.05% 1.71% -29.7 -30.4 -10.7 -12.9 7.2 3.3 62.0 55.7 491.1 643.7 UKTi Aug-13 -0.20% 2.32% -12.0 -14.4 -1.2 -8.2 9.5 -3.5 36.5 9.1 77.0 17.0 UKTi Jul-16 0.74% 2.59% -6.0 -8.3 1.5 -5.1 9.2 -3.1 27.7 2.2 55.5 2.0 UKTi Nov-17 0.89% 2.79% 5.6 3.3 2.5 -3.9 10.6 -1.2 26.2 1.8 48.7 -2.0 UKTi Apr-20 1.19% 2.83% -3.7 -5.8 1.6 -4.2 7.2 -3.6 20.2 -2.0 40.0 -5.8 UKTi Nov-22 1.23% 3.16% 3.8 2.0 2.0 -2.8 7.5 -1.4 18.1 0.0 33.2 -3.8 UKTi Jul-24 1.28% 3.10% -2.7 -4.4 1.3 -3.5 5.5 -3.4 15.2 -3.0 29.4 -7.6 UKTi Nov-27 1.19% 3.21% 2.7 1.2 1.4 -2.8 5.3 -2.5 12.7 -3.1 22.9 -8.8 UKTi Jul-30 1.18% 3.25% -2.2 -3.5 1.0 -2.7 4.2 -2.6 11.8 -2.0 22.5 -5.0 UKTi Nov-32 1.07% 3.36% 2.1 0.8 1.0 -2.6 4.1 -2.7 9.8 -4.0 17.6 -10.0 UKTi Jan-35 1.03% 3.42% -1.7 -2.9 0.6 -2.8 3.0 -3.2 8.5 -4.1 16.0 -9.3 UKTi Nov-37 0.92% 3.51% 1.7 0.6 0.8 -2.5 3.2 -2.8 7.8 -4.4 13.8 -10.6 UKTi Nov-42 0.82% 3.60% 1.4 0.3 0.6 -2.4 2.5 -3.1 6.1 -5.2 10.7 -11.8 UKTi Nov-47 0.70% 3.68% 1.2 0.2 0.5 -2.3 2.2 -3.0 5.3 -5.2 9.2 -11.6 UKTi Mar-50 0.69% 3.68% 1.1 0.2 0.4 -2.3 2.0 -3.1 4.8 -5.3 8.3 -11.7 UKTi Nov-55 0.66% 3.67% 1.1 0.2 0.4 -2.1 2.0 -2.8 4.8 -4.8 8.3 -10.6 JPY Pricing Date 11-Feb-10 Term 1 Term 2 3m 6m 12m Repo Rate 0.12% 0.12% 0.12% 0.13% 0.14% JPY DRI 99.879 99.800 99.100 98.923 98.661 98.979 Sett. Date 16-Feb-10 10-Mar-10 10-Apr-10 17-May-10 16-Aug-10 16-Feb-11 Yield BE Yield BE Yield BE Real BE Real BE Real BE JGBI-1 Mar-14 1.37% -0.96% -0.6 -1.1 -16.4 -17.5 -18.9 -20.7 -17.4 -21.2 10.2 1.5 JGBI-2 Jun-14 1.34% -0.90% -0.6 -1.0 -15.4 -16.5 -17.7 -19.7 -16.4 -20.4 8.8 -0.3 JGBI-3 Dec-14 1.34% -0.83% -0.5 -1.0 -13.7 -14.9 -15.7 -17.9 -14.4 -18.9 7.5 -2.3 JGBI-4 Jun-15 1.42% -0.85% -0.3 -0.9 -12.0 -13.3 -13.6 -15.9 -11.9 -16.6 8.7 -1.6 JGBI-5 Sep-15 1.30% -0.68% -0.5 -1.1 -12.0 -13.4 -13.8 -16.2 -12.8 -17.7 5.4 -5.3 JGBI-6 Dec-15 1.37% -0.72% -0.4 -1.0 -11.3 -12.7 -12.9 -15.3 -11.5 -16.6 6.8 -4.3 JGBI-7 Mar-16 1.40% -0.70% -0.4 -1.0 -10.8 -12.3 -12.3 -14.8 -10.8 -16.1 6.8 -4.6 JGBI-8 Jun-16 1.54% -0.81% -0.2 -0.8 -10.0 -11.6 -11.2 -13.8 -9.1 -14.5 9.4 -2.2 JGBI-9 Sep-16 1.45% -0.68% -0.3 -1.0 -10.0 -11.5 -11.2 -13.9 -9.6 -15.2 7.3 -4.6 JGBI-10 Dec-16 1.47% -0.66% -0.2 -0.9 -9.6 -11.2 -10.8 -13.5 -9.1 -14.8 7.3 -4.9 JGBI-11 Mar-17 1.53% -0.67% -0.2 -0.9 -9.1 -10.8 -10.2 -13.0 -8.3 -14.2 8.0 -4.4 JGBI-12 Jun-17 1.60% -0.69% -0.1 -0.8 -8.6 -10.3 -9.5 -12.4 -7.4 -13.4 9.0 -3.8 JGBI-13 Sep-17 1.59% -0.64% -0.2 -0.9 -8.5 -10.2 -9.3 -12.3 -7.4 -13.5 8.4 -4.6 JGBI-14 Dec-17 1.62% -0.63% -0.1 -0.8 -8.1 -9.9 -8.9 -12.0 -6.9 -13.1 8.5 -4.6 JGBI-15 Mar-18 1.65% -0.62% -0.1 -0.8 -8.0 -9.7 -8.7 -11.7 -6.7 -12.8 8.6 -4.5 JGBI-16 June-18 1.71% -0.64% 0.0 -0.8 -7.6 -9.4 -8.2 -11.4 -6.0 -12.4 9.3 -4.3 Shahid Ladha/ Herve Cros 12 February 2010 Market Mover, Non-Objective Research Section 31 www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 3 and 4: gave a few specific details on the
Page 5 and 6: More clarity was given on the seque
Page 7 and 8: Sovereign Debt: Time for Europe to
Page 9 and 10: The PS is more likely to face in th
Page 11 and 12: outlook for GDP and inflation. So h
Page 13 and 14: On inflation, Riksbank’s language
Page 15 and 16: Spending on other areas never did i
Page 17 and 18: would argue that resolving this iss
Page 19 and 20: Ramifications for Rates, Swap Sprea
Page 21 and 22: EUR: Demand for ECB’s Liquidity S
Page 23 and 24: EUR: Peripheral ASW Curves Re-Steep
Page 25 and 26: JGBs: Wait for Price Dips in Q2 •
Page 27 and 28: Table 1: BNP Paribas' Inflation For
Page 29: Table 3: BNP Paribas' Inflation For
Page 33 and 34: Update on curves 5/10y indices’ c
Page 35 and 36: Technical Analysis - Interest Rates
Page 37 and 38: Trade Reviews Options, Money Market
Page 39 and 40: leave the euro significantly lower.
Page 41 and 42: open for further measures if requir
Page 43 and 44: EUR/SEK has broken sharply lower th
Page 45 and 46: Economic Calendar: 12 - 19 February
Page 47 and 48: Key Data Preview 115 105 95 85 75 6
Page 49 and 50: Key Data Preview Chart 5: Italian G
Page 51 and 52: Key Data Preview Source: Reuters Ec
Page 53 and 54: Key Data Preview Chart 13: Norwegia
Page 55 and 56: Key Data Preview Chart 17: UK Retai
Page 57 and 58: Economic Calendar: 15 February - 12
Page 59 and 60: Next week's T-Bills Supply Date Cou
Page 61 and 62: Economic Forecasts GDP Year 2009 20
Page 63 and 64: Market Coverage Market Economics Pa

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