27 Feb 2015
Periphery bonds remain strong – Danske Bank
FXStreet (Edinburgh) - Sverre Holbek, Senior Analyst at Danske Bank, remarks the solid performance from the peripheral debt markets in Euroland.
Key Quotes
“The rally in the periphery continued as Italy launched a new 10Y benchmark yesterday”.
“Italy, Spain and Portugal all outperformed core EU as 10Y PGB traded at a record low 10Y yield of 1.85%. Hence, the hunt for yield intensifies ahead of the start of the QE by ECB”.
“Given that the ECB is buying bonds at a large scale and cannot participate in the primary market, buying now at the primary auction rather than later looks like a risk-free trade for investors, as they can always offload the bonds to the ECB when the QE programme begins”.
“In order to participate in the QE programme however, you need to have "inventory". So the spread compression continues and both the 10Y Spanish and 10Y Italian spread to Germany will continue to grind lower, with the next targets likely to be 75bp and 85bp, respectively”.
Key Quotes
“The rally in the periphery continued as Italy launched a new 10Y benchmark yesterday”.
“Italy, Spain and Portugal all outperformed core EU as 10Y PGB traded at a record low 10Y yield of 1.85%. Hence, the hunt for yield intensifies ahead of the start of the QE by ECB”.
“Given that the ECB is buying bonds at a large scale and cannot participate in the primary market, buying now at the primary auction rather than later looks like a risk-free trade for investors, as they can always offload the bonds to the ECB when the QE programme begins”.
“In order to participate in the QE programme however, you need to have "inventory". So the spread compression continues and both the 10Y Spanish and 10Y Italian spread to Germany will continue to grind lower, with the next targets likely to be 75bp and 85bp, respectively”.