Room for tighter asset swap spreads as issuance picks up

Transcription

1 Room for tighter asset swap spreads as issuance picks up Senior Analyst Senior Analyst Peter Possing Andersen Lars Tranberg Rasmussen pa@danskebank.dk laras@danskebank.dk

2 Trade recommendation Sell Sept Bund asset swap spread future Entry: Scale in with ½ 68.3 basis points and further ½ 8 if this level is reached. Target: 35 Stop: 9 Sell Sep Bobl asset swap spread future Entry: Scale in with ½ 78.1 and further ½ 9 if this level is reached Target: 45 Stop 1 Alternative implementation Asset swap package on Bund / Bobl bonds December futures when coming closer to September delivery. 2

3 Asset swap spreads very wide - Bund asset swap spread close to financial crisis high Oct Jan 8 Source: Danske Markets Schatz asset swap spread Apr Jul Oct Jan 9 Bobl asset swap spread Bund asset swap spread Apr Jul Oct Jan 1 Apr 11 Jul

4 Bund asset swap spreads fundamentally wide 8 Model on public deficit, privat NFC debt gross issuance, basis spread, 6m fixing, 1yr gov EUR 1yr (simple) swap spread Residual +/- two standard deviations Source: Danske Markets and Reuters Ecowin 4

5 Bund spread have been trading in tandem with PIIGS - but no tightening, so far, as bank CDS and MM basis are trading wider PIIGS yields have moved lower on SMP buying but the basis and CDS spreads have widened Jan << Model on GDP weighted PIIGS 1yr sovereign yield vs Bunds (allowing for different coefficients on Ita-Spa and Grc-Ire-Prt) Bund asset swap spread 1st future >> Feb Mar Apr May Jun Jul Aug Itrax financial senior 3M Euribor - 3M EONIA Source: Danske Markets and Reuters Ecowin Source: Danske Markets and Reuters Ecowin 5

6 Very low issuance activity in recent months - the pipeline could be rather big when the market opens Gross issuance close to record low net issuance lower than during the financial crisis 1 EUR bln EUR bln 14 Gross issuance EUR bonds ex. govies +3yr maturites, 3-months avg Maturing EUR bonds ex. govies 2 +3yr maturities 3 months avg Source: Dealogic EUR bln Net issuance EUR excl. govies +3yr maturities (3 months average) EUR bln Source: Dealogic Note: The chart shows gross issuance and maturing issues over a 3-month window for bonds issued with a maturity at above 3 years. In the coming months a lot of existing debt will mature Note: The chart shows the difference between gross issuance and maturing bonds issued with a maturity of above 3 years 6

7 Issuance activity usually picks up in September Seasonal factor, gross issuance EUR ex govies +3yr maturities (2-present) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Danske Markets 7

8 If issuance picks up, there is room for tighter ASW spreads - but watch out for the bank CDS spreads EUR bln << EUR ex. govies gross issuance +3yr maturities, 3 month cma (inverted scale) Bund asset swap spread >> Sep Jan 8 << Itrx senior financial May Sep Jan 9 Bund asset swap spread >> May Sep Jan 1 May Source: Danske Markets, Reuters Ecowin 8

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