30 Jan 2013
Gilts grinded higher ahead of the syndication today with people being squeezed out of their shorts, again outperforming bund by 30 ticks on the rally. This has been the main theme over the last week with investors left licking their wounds on the resilience of gilts. Elsewhere, there were rumours circulating in the market that soon-to-be BoE governor Carney was to speak in front of the TSC on the 7th of feb to explain a potential switch to nominal GDP target and away from an inflation target. This will be done on the same day as the MPC meeting in which the market expects a decision on what is to be done with the QE cash. We keep a close eye on these events and look out to how the market will position ahead of the key date.
5 Feb 2013
Political uncertainty in Spain and Italy kept the market in a very subdued tone today with most indices/bonds trading in a risk-off mood. The flight to quality sent equity indices off their 5-year highs (dax -2.5%, ibex -4%) as peripheral bonds took a tumble on the leg lower (sp 10y yield up 25bps). The sharp moves seen in bunds (traded in a big figure range through the day) seemed to have been helped by stops being triggered on the rally. Also good buying the euro strip ahead of Thursday’s ECB meeting where Draghi is expected to comment on the strength of the EUR whilst that day will also see the MPC meeting and Carney’s TSC hearing.
8 Feb 2013
The European market is nursing heavy losses across the board after ECB’s Draghi reiterated that the current accommodative stance was appropriate and highlighted downside risks to the euro economy and also stressed that they would closely monitor liquidity conditions in the money markets and their impact on the monetary policy stance. The news put a firm bid into the short end of Euro curve (greens closing up 8bps) whilst equity markets across the region are mostly lower (cac -1.1%, mib -1.2%) with Ireland a notable exception; the Irish government reached a conclusion on a more sustainable promissory note deal which saw the annual promissory note payments for Anglo Irish end and promissory notes replaced with bonds with maturities of up to 40 years. In the UK, the BoE also held policy unchanged as had been expected with the other main news being the announcement that the 6bn proceeds from QE will be reinvested in gilts and not transferred to the treasury. This provided some support for uk paper as we cut back on the day’s losses to close mostly unchanged with the curve once again steeper (2x10s +4bps). Also, soon-to-be-governor Carney appeared in front of the TSC and delivered a non surprising set of responses. The remarks did not depart significantly from the official MPC view on QE and thus little market moving.