EU stimulus delayed after Hungary and Poland veto the budget proposal

The nervousness in markets, spurred by the renewed public health restrictions around the world, dominated the sentiment yesterday, leading to profit-taking emerging in risk assets. Japan and South Korea raised their public health alert levels, while New York City announced that it had stopped in-class teaching and cut subway and bus services. The market reaction however been rather muted and even reversed some of the losses later in the afternoon, despite the US jobless claims data coming worse than expected: initial claims increased to 742k (vs 700k exp and 711k previously), although the continuous claims remained on a downward trend, decreasing by 400k WoW to 6.4mn. S&P 500 finished the day in the green, up 0.4% and Shanghai Composite rose 0.5%, FTSE 100 and DAX however were not as strong, ending the day 0.8-0.9% in the red. USTs continued on their rally with 30Y yields down another 4bps in yield terms to 1.54% at the time of writing. Brent is relatively flat, trading around $44.3/b levels this morning.

It looks like the indecisiveness on the fiscal stimulus plans could be contagious with Europe now suffering from the stimulus package delay due to yet another failure to get a unanimous budget approval. Hungary and Poland vetoed the package again, reiterating similar objections to tying disbursements to upholding democratic standards. The EGBs however remained in the narrow range with 10Y German bund yield tightening only by 1bps to -0.57% area. Lagarde’s comments before the EU Parliament also has not provided much impact, as she reiterated her dovish stance with PEPP and TLTRO likely to remain the instruments of choice. Periphery followed the Bunds’ moves with SPGB and BTPS tightening 1-2bps. GGB was the underperformer with the risk off sentiment driving the yields up, GGB 35 yield rose 5bps to 0.88% on the day.

In the CIS mkt we had a flurry of new issues printing this week with the latest VIP 27 out of Russia coming on Thursday and the new UZBEK 30 bond issuing yesterday. Both have performed well with the latter being bid up 1pt from reoffer today and the former seemed to stabilise at up 60c. in the movers of yesterday TAJIKI 27 was the notable performer, outperforming the market to move up 1pt higher in price.

In MENA markets the bonds were mostly stable yesterday with some weakness in the KSA/ARAMCO, with the bonds calming down after a stellar performance in the new ARAMCO bonds on Wednesday. IG sector ended the day -2/+3 on average with the risk off sentiment opposing the treasuries move. A point to note we have seen a particular demand coming through for Qatari banks with the names outperforming on the day down 2-5bps in yield terms. High beta names however fared less well yesterday with the likes of OMAN and BHRAIN ending the day down 50c-1pt. The bonds remained well bid however with bonds being picked off the lows quite easily. In New Issue space, Dubai Aerospace Enterprise (DUBAEE) came to the market yesterday with the new 5.25Y sukuk deal, printing 750 mio at 3.875% yield. The bond was seen trading up 80c this morning.

We have seen mixed flows yesterday in the SSA sector with the markets initially opening with some light selling across oil names, which however quickly turned with some short covering into net demand across the space. GHANA 35 was seen trading at 94.5 levels ( -37.5c on the day) while ZAMBIN was a definite outperformer of the space, trading up 3pts and bids continuing. ANGOL was on the other hand the underperformer with the bonds down 50c and selling pressure continuing across the curve. NGERIA was flat to 1pt higher. IVYCST saw particular demand across the EUR bonds while KENINT was better bid in the long end of the curve.

Latam was one of the strongest spaces yesterday with the morning sell-off that we saw in other sectors never really touching the space. Better buying from real money accounts continued to dominate the sector, driving the sovereigns up 50c-1.5pts across the curves. The underperformers were BRAZIL, and the PANAMA/COLOM/PERU sector, only up 50-60c in the long end. PERU on the other hand was an unexpected outperformer, with 30Y space up 1.25-1.5pts on the day despite the political instability that took hold of the country after the resignations of interim president Manuel Merino. Elsewhere, MEX 75c-1pt on the day and PEMEX curve steepened with net buying of both names as primary supply in the sovereign was finally absorbed by accounts. In Primary markets we 2 issues from Mexico (TIEMOD 5 ¾ 40) and Brazil (BTOWBZ 4⅜ 30) yesterday, with both showing strong performance both ending the day at 101.6 levels.