ECB Won’t Overreact to Stronger EUR


As largely expected, ECB meeting came in-line yesterday, announcing that the bond buying programme would remain at EUR1.35tn and rates would be left unchanged. Separately, Lagarde said that the ECB had discussed the issue of the surging euro and would monitor it going forward. Still, she did not hint on any pressing need to adjust policy in response to the stronger euro. Her views screened as moderately upbeat about the economic recovery, hence slightly disappointing the hopes that she would signal more stimulus. DBR yields traded up 5bps on the day, with 10Y touching -0.42% mark, however reversed most of its moves at the time of writing today. EU periphery fared well in the last couple of days, BTPS spreads tightened 7-10bps across the curve, while GGB tightened 4bps. GBP continued to weaken yesterday, as Brexit negotiations suddenly came back into the spotlight. Negative headlines dominated the morning’s newsflow with reports that the EU is considering legal action against the UK over plans to breach the withdrawal agreement. GBP is down to 1.28 levels vs USD for the first time since July.


Other than the ECB, US initial jobless claims were also a much-awaited data on the agenda. Weekly initial jobless claims came slightly weaker at 884k, vs. 850k exp., while continuous claims upped 93k to 13.39mn vs 12.9mn exp. USTs followed the bunds move initially with 30Y yields moving up 4bps initially to 1.49% levels just to reverse later, ending up at 1.42% levels (3bps lower on the day) as some selling pressure returned to US equities. SPX dropped 1.8% while Nasdaq underperformed again, loosing 2%. Other equity markets mostly posted marginal losses. DAX and FTSE 100 edged down 0.2%, while Shanghai Composite decreased 0.6%. Brent slipped 1.8% to $40/barrel on weaker equities and disappointing US crude oil stockpiles data.


In MENA, HY names felt under pressure yesterday. The new BHRAIN bonds both traded down around 50c after issue, however the 10Y sukuk was bid back to par, backed by the local demand. OMAN was one of the underperformers on the day, as news came of the planned issuance in the belly of the curve to come soon. EGYPT was the outperformer, with EGYPT 50 trading up 50c on the day to mid-105 levels, still some way to go however back to recent highs of 108s. In lower beta space, KSA was the firmest of the space with RM buying belly and long end of the curve. Bonds were flat to 25c up on the day. ADGB saw some selling pressure, especially the recent issues as fast money continued to exit positions, down 25-50c on the day.


In Latam, there was quite a bit of action yesterday. In Primary markets, Brazilian SUZANO and EMBRBZ both tapped the market successfully, issuing a 10Y and a 7Y respectively. The bonds traded up 25-70c in grey yesterday. Elsewhere, PETBRA front-end bonds rallied 2.25pts+ on the news while belly and the long end was up 1-1.25pts on the back of the $4bn tender announcement yesterday. Higher beta names were weaker yesterday however, Argentina bonds ending the day -1/-1.75pts on the dollar curve, Although the EUR issues outperformed, up +1pt in cash. ECUA also had a heavy session, with bonds finishing down 1.5-2.5pts. In IG space BRAZIL outperformed, boosted by the PETBRA tender, up 30c in the long end and COLOM stayed flat while other names, like CHILE, PANAMA and PERU traded down 15-45c in the long end.


In CIS, some IMF headlines touched Ukraine yesterday, as they failed to set a date for a review, warning that the NBU needs to retain its independence. The country is also on S&P rating calendar today. The bonds traded slightly weaker yesterday after the recent strong performance, closing down 20-30c in the long end. In Russia, BORFIN, a global manufacturing company, providing artificial lift systems and related aftermarket services to oil producers globally, has successfully rollovered their Eurobonds yesterday, issuing $350mn of new 6Y bonds at 6% after announcing a tender offer for their current 2022 maturity. The bonds are faring well this morning, seen bid flat to + 3/8 this morning. Elsewhere, BELRUS was the outperformer with BELRUS 30 trading up 50-60c. In IG space, Russia remained stable, while KAZAKS curve traded down 30-40c in the long end.