JGBS: SocGen Reaffirm End '25 10-Year Forecast, Bar For BoJ Action "Very High"
Mar-12 09:53
Societe Generale find the current level of “10-Year yields stretched, but not extreme, based on fair value models, and stick with a year-end forecast of 1.65%”.
- They note that “long-end JGB yields have seen two separate two standard deviation sell-offs in the past week, with the rise in yields already prompting much discussion around the BoJ’s tolerance”.
- “We have received a series of questions from investors on whether we would expect the BoJ to conduct buying operations in response to rising yields and in what conditions. In short: we think the bar is very high. The BoJ is in a new era of policy; YCC is over, and the focus is now on balance sheet rundown”.
- “BoJ Governor Ueda has repeatedly said the Bank’s stance is to allow market forces to drive the formation of yields and that the BoJ could respond nimbly to calm abnormal bond market moves”.
- “Japan’s 2025 budget already reflects expectations for average interest rates of 2% and above from the next fiscal year, showing government official awareness and expectations of higher yields, and implying a level of tolerance”.
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EQUITIES: Latest EU Bank Options
Feb-10 09:43
Couple of Bank Options:
- SX7E (20th Jun) 160/140ps, bought for 4.40 in 6k.
- SX7E (20th Jun) 177.5c, bought for 2.45 in 5k.
EGBS: Light Peripheral Outperformance vs Bunds This Morning
Feb-10 09:40
Light outperformance in 10-year peripheral bonds against Bunds, with European equity futures off Friday’s lows. The rally in European NatGas prices is likely helping to contain upside across core/semi-core EGBs this morning.
- The BTP/Bund spread is ~1bp tighter at ~108.5bps, after 106bps once again provided a floor to the spread last week. We look for a 2040 BTP to be launched via syndication in February, although with a decent risk of the transaction slipping into March.
- The OAT/Bund spread is a little tighter at ~71.5bps. However, medium-term political risks remain prevalent despite PM Bayrou surviving last week’s censure motions, after he forced the 2025 budget through the National Assembly using Article 49.3.
- Our Political Risk team highlighted last Friday that there is significant uncertainty surrounding the so-called 'spontaneous censure motion' that the PS intends to bring against the gov't this week. With the PS and presumably the rest of the leftist New Popular Front (NFP) alliance parties in favour, if the far-right RN backs the motion it would be enough to oust Bayrou.
OAT: Block trade
Feb-10 09:37
OAT Block trade, suggest buyer.
- OATH5 ~1.1k at 124.37.
