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Enron Mail |
COMMENTS
EUR SWAPS Another fairly quiet day, with curve steepening from the front end, key flow of the afternoon was one US name receiving in 4bn 1y1y fwd swap, this was relatively well absorbed by the mkt, but aided 2-10's on its 4bps steepening on the day. Flows in long end of curve light with 10-30's broadly unch on the day & 30yr spreads pushing wider by 1bps. GBP Curves disinverting in both gilts & swaps led by the long end on various stories in the mkt, most mentioned is maybe the potential for reforms of annuities, while rumours have been around for a long time, word is building that in the pre budget report there may be a plan to get rid of this. This might also explain the delay of the 2025's tap until the week after the report. Swap spreads broadly unchanged, 10-30's swaps disinverted 3.5bps, with 2-10's swaps unch. UK swap spreads are also increasingly becoming a topic for discussion at these lvls, while we do feel we are starting to reach a support lvl in long end swap spreads, we dont see these levels as an obvious widening opportunity. Generally we do feel that further downside over the coming months in 30yr spreads is probably limited to maybe 5bps or so, and on that basis, it is worth keeping an eye on these and maybe looking to start averaging in soon, but its not clear that the narrowing flows of the last few months are definitely over for the year & while offside risk already in the trade is not significant compared to other flows in the mkt, its certainly out there potentially making this a little crowded going fwd. DKK The Danish election yesterday saw the largest swing since 1968 and reduced the ruling Social Democrats to the second largest party only for the first time in 75 years. The new prime minister will be the leader of the Liberals, Anders Fogh Rasmussen. Together with the Conservatives, the Liberals will begin the work of forming a new government. But this is likely to be a fragile minority government, dependent on shifting coalition partners. The Liberals had hoped to count on the support of the EU-friendly Centre-Democrats but the latter failed to pass the 2% threshold for parliamentary representation. Instead, the right wing Danish Peoples Party emerged to become the third largest party - doubling its mandate. Fogh Rasmussen is going to have a tough job in conquering the middle ground. General elections in Denmark do not ignite much market reaction & this is unlikely to change this time around as the general thrust of the economic policies will not change much, especially on EMU. JPY Bumpy day in Japan, with profit taking by domestics pre auction, then better buying 7-10yr paper, as the new 235's, 1.4% coupon, 1.7trln in size, came at pretty expensive lvls with good customer buying 100.78 ave px, 100.75 low, 100.60/65 area fair value. FOllowing the auction S&P announced Japan downgrade, futures crashed half a point, but mkt bounced back on buying and 7-10's flattened 1.5bps, helped by a strong domestic receiver in 7-10's. Going forward, we see the downgrade impact as pretty limited. Head of S&P Japan commented there is higher possibility of further downgrade from AA (compare to the time they downgraded from AAA to AA in Feb 01) LEVELS (close to close, ex basis) SWAP CURVE GBP/EUR(EUR convention) today t-1 5y5y -22 -22 15y15y -140 -147 10/30? -35.5 -39.0 10/30E +45.7 +45.5 EUR SWAP SPREADS 5y: Bobl 138 27.0 1.0 wider 10y: Jan 11 bund 34.4 0.6 wider 30y: Jan 31 bund 23.1 1.0 wider EUR SWAP VOLATILITY 3m into 10yr 14.5 0.2 higher 1y into 10yr 13.1 0.2 higher 2y into 10y 12.6 0.2 higher 5y into 5y 12.5 0.3 higher 5y into 25y 10.5 0.2 higher 10y into 20y 9.9 0.2 higher 5y5y swaption/5x10 cap spread 2.5 This material is for your private information, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. 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