Market Outlook - BNP PARIBAS - Investment Services India

This section is classified as non-objective researcharouse sufficient interest could present a problem.Perhaps the triple-booking was the Fed’s way ofensuring better investor demand and liquidity at thesellback.If the results of the first event are any indicationthough, they have little to worry about. Demand atthe event was impressive with April 12s performingvery well along with July 12s as the Fed ownssignificant amounts of both but actually sold neitherissue. The Fed will eventually sell these as theyrichen, but that may not occur for some time. Thelarge size of the purchases at the last sellback alsoindicates the strength of the demand and perhapspoints to a small number of very aggressivebuyer(s).We have stated at several points past thatthe long end of the breakevens curve appears tooflat. The 10-30 breakevens curve has already startedto correct and could move further in the month aheadwith our target of 35 at the 1 year average. Thecatalysing factors here would be an index extension(+0.18) that favors 30s, a lacklustre extension for 10sin November (+0.01), a greater float for the 30yr, andFed buying in the 30yr at the expense of 10s. Forfurther details, please see our earlier trade note on19 October titled "Post-CPI Trade Idea - Long-endBE Steepener or Fly.Shahid Ladha / Herve Cros / Aaron Kohli 20 October 2011Market Mover46www.GlobalMarkets.bnpparibas.com