Market Outlook - BNP PARIBAS - Investment Services India

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This section is classified as non-objective researchrichening of the 5y ATS has been greater thanforecast (25bp).Sell OAT Apr 21 into Apr 26This trade, recommended two weeks ago, was a wayto exploit the excessive steepeness of the 10y/30yOAT segment. The spread has already flattened byroughly 8bp but, as Chart 4 shows, it still has somepotential as the observed 10y/30y OAT segment istrading 11/12bp too steep. Moreover, if the past isany guide, the example of the BTP and Bonosegments last July, when the 10y/30y segmentscollapsed 25 to 35bp below their fair value, showsthat OAT flatteners on that segment can be a cheapput on further eurozone upheaval.New trade recommendationsIn terms of relative value, we see a few tradingopportunities on the OAT curve.2y/4y area: July 13/July 14 BTAN switchAs stressed in the RV charts section, BTAN July 13has outperformed both BTAN July 14 and versusSep 13. Versus Sep 13 the yield pick-up spiked from7 to 16bp while BTAN July 13 repo conditions are notspecial. Versus BTAN July 14, the BTANJuly 13/July 14 spread steepened by almost 20bp(Chart 5), while the Bund one has remained stable.Strategy: we recommend selling BTAN July 13either into BTAN Sep 13, enjoying a 15/16bp pick-up,or for the more aggressive, into BTAN July 14. Thespread around 41-42bp should tighten back to thelow 30s.7y/10y areaThe Jan 14/Jan 20 Bund segment’s steepening hasstopped with the test of the critical long-term supporton schatz (around 109.35/40 on the Z1 contract).Moreover, as stressed on the previous page and inthe RV charts section, most 2y/10y OAT boxes toAAA are back to pre-SMP 2.0 levels – i.e., the 10yOAT too cheap. Versus Bunds, the box is in the mid40s, depending on the bonds used. If the past is anyguide, 2y/10y BTP and Bono ASW boxes to Bundstopped in 2011 in the high 30s and 40s, respectively– close to the current box level for OAT/Bund. Thismeans that, although unlikely, any additionalwidening pressures on OAT/Bund spreads shouldstart to focus at the short end of the French curve asseen earlier this year for BTP and Bonos. Thealternative scenario – our preferred one – is thatmajor announcements after the EU summit on 23October will allow the box to adjust lower withstronger 10y OATs.Chart 4: OAT 10y/30y Segment Normalisation isWell Entrenched3020100-10-2030y OAT expensive-30Feb-10 Aug-10 Feb-11 Aug-11Source: BNP Paribas10y/30y OAT spread vs Euribor slopeSpec on AAAstatus lossAvr 20/Avr 41 OAT spd30y OAT toocheapChart 5: BTAN July 13/July 14 ASW & ASW Boxto Bunds: BTAN July 14 Too Cheap2520151050Aug-11 Sep-11 Oct-11BTNS 3 12/07/14 ASW-BTNS 4.50 12/7/13 ASWDBR 4.25 7/14 ASW-DBR 3.75 7/13 ASWBTNS 3 07/14 ASW-BTNS 4.50 7/13 ASW-DBR 4.25 7/14 SER 04 ASW-DBR 3.75 7/13 ASW (RHS)Source: BNP Paribas0.450.40.350.30.250.20.150.10.05Chart 6: BTAN Jan 14/OAT Apr 20 Spread andOAT/Bund 2014/2020 BoxAug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11Source: BNP ParibasFRTR 3.5 04/20 YLD-BTAN 2.50 01/14 YLD-DBR 3.25 01/20 YLD-DBR 4.25 1/14 YLDFRTR 3.5 04/20 YLD-BTAN 2.50 01/14 YLD (RHS)2141210864201.91.81.71.61.51.41.31.2Strategy: Sell BTAN Jan 14 vs. OAT Apr 20 in the163/165bp area, targeting a move below 150bp.Eric Oynoyan / Ioannis Sokos 20 October 2011Market Mover36www.GlobalMarkets.bnpparibas.com
EMU Debt Monitor: RedemptionsThis publication is classified as non-objective researchEGB Monthly RedemptionsBonds Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011ITA 0.0 18.7 30.5 0.0 14.6 12.2 0.0 20.2 46.0 0.0 15.5 0.0 157.6FRA 17.8 0.0 0.0 18.4 0.0 0.0 29.3 0.0 13.8 15.7 0.0 0.0 95.0GER 23.3 0.0 15.0 19.0 0.0 15.0 24.0 0.0 16.0 17.0 0.0 18.0 147.3SPA 0.0 0.0 0.0 15.5 0.0 0.0 15.5 0.0 0.0 14.1 0.0 0.0 45.1GRE 0.0 0.0 8.7 1.0 7.0 0.0 0.0 6.8 0.0 0.0 0.0 5.8 29.4BEL 0.0 0.0 11.3 0.0 0.0 3.4 0.0 0.0 12.7 0.0 0.0 0.5 27.9NET 13.9 0.0 0.0 0.0 0.0 0.0 14.1 0.0 0.0 0.0 0.0 0.0 27.9AUS 8.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 8.4POR 0.0 0.0 0.0 4.5 0.0 5.0 0.0 0.0 0.0 0.0 0.0 0.0 9.5IRE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.5 0.0 4.5FIN 0.0 5.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.7Total 63 24 66 58 22 35 83 27 89 47 20 24 558EGB Monthly RedemptionsT-Bill Monthly RedemptionsT-Bills Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011ITA 17.4 17.3 17.3 17.3 14.6 19.3 16.3 16.2 15.7 15.7 14.9 20.0 201.8FRA 33.3 35.9 38.3 31.9 32.1 32.7 30.9 28.7 36.4 36.1 34.8 37.1 408.2GER 11.0 11.0 11.0 11.0 11.0 11.0 9.0 9.0 9.0 10.0 10.0 9.0 122.0SPA 8.7 7.9 10.2 7.3 7.9 6.3 7.3 11.9 7.3 10.0 6.2 9.3 100.3GRE 4.2 0.4 1.4 3.2 1.0 4.4 2.5 4.0 3.6 3.3 3.6 31.6BEL 5.5 6.2 6.4 6.7 7.4 6.8 5.4 5.4 5.0 6.4 6.4 6.8 74.4NET 9.7 8.3 17.4 7.0 6.9 10.9 7.7 6.2 7.8 12.7 7.1 10.1 111.6AUS 0.1 2.2 0.9 3.4 0.5 1.9 2.4 2.0 0.2 0.7 1.2 0.3 15.8POR 3.4 3.5 3.8 0.0 4.0 3.1 3.5 3.3 3.6 2.3 30.4IRE 2.1 1.2 1.6 1.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.2FIN 3.5 2.3 2.6 1.5 2.2 0.7 0.6 1.1 0.1 0.0 0.0 14.6Total 98.9 96.2 110.9 90.6 83.6 89.6 87.4 85.3 90.0 98.5 87.5 98.3 1116.8T-Bill Monthly Redemptions1009080706050403020100Monthly EGBs RedemptionsJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec120100806040200Monthly T-Bills RedemptionsJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecThis Month’s EGB RedemptionsCountry Bond Maturity Issued EURs (bn) CRNCYFRANCE FRTR 5 10/25/11 25/10/2011 11/09/2001 15.65 EURGERMANY OBL 3 1/2 10/14/11 14/10/2011 29/09/2006 17.00 EURSPAIN SPGB 5.35 10/31/11 31/10/2011 12/06/2001 14.09 EURThis Month’s T-Bill RedemptionsCountry T-Bill Maturity CRNCY EURsAUSTRIA Various small T-bills1.31BELGIUM BGTB 0 10/20/11 20/10/2011 EUR 6.41FINLAND RFTB 0 10/11/11 11/10/2011 EUR 0.07FRANCE BTF 0 10/06/11 06/10/2011 EUR 9.56FRANCE BTF 0 10/13/11 13/10/2011 EUR 8.09FRANCE BTF 0 10/20/11 20/10/2011 EUR 8.60FRANCE BTF 0 10/27/11 27/10/2011 EUR 9.86GERMANY BUBILL 0 10/12/1112/10/2011 EUR 5.00GERMANY BUBILL 0 10/26/1126/10/2011 EUR 5.00GREECE GTB 0 10/14/11 14/10/2011 EUR 2.00GREECE GTB 0 10/21/11 21/10/2011 EUR 1.63ITALY BOTS 0 10/14/11 14/10/2011 EUR 7.15ITALY BOTS 0 10/31/11 31/10/2011 EUR 8.53NETHERLANDS DTB 0 10/31/11 31/10/2011 EUR 12.66PORTUGAL PORTB 0 10/21/1121/10/2011 EUR 3.27SPAIN SGLT 0 10/21/11 21/10/2011 EUR 10.04All charts sources: BNP ParibasEric Oynoyan / Ioannis Sokos 20 October 2011Market Mover37www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 8 and 9: Germany: On the Hook• German data
Page 10 and 11: UK: Top Of The Hill• The Septembe
Page 13: we believe that contractions in pri
Page 16 and 17: Japan: Real Reason for ‘Turning J
Page 18 and 19: Political question of whether peopl
Page 20 and 21: This section is classified as non-o
Page 34 and 35: EMU Debt Monitor: Key RV ChartsThis
Page 40 and 41: Global Inflation WatchInflation see
Page 42 and 43: Table 2: BNP Paribas' Inflation For
Page 50 and 51: This section classified as non-obje
Page 54 and 55: Economic Calendar: 21 - 28 October
Page 56 and 57: Key Data PreviewChart 1: UK Public
Page 58 and 59: Key Data Preview1400120010008006004
Page 60 and 61: Key Data Preview12.510.07.55.02.50.
Page 62 and 63: Key Data PreviewChart 13: Japanese
Page 64 and 65: Economic Calendar: 31 Oct - 25 Nov3
Page 68 and 69: Economic ForecastsGDPYear 20112012(
Page 70 and 71: Market CoverageMarket EconomicsPaul

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