Markets
Coming-of-age Day (Japanese holiday) confined overnight Asian trading. European investors kept their cards close to their chests as well, but things are changing as US investors enter the fray. The outcome is a combination we don’t witness every day, but which could become a more permanent feature: stocks and bonds selling off in lockstep. Main European indices currently trade 1% in the red with the US benchmarks registering similar losses at the opening bell. Selling of US Treasuries continues unabated ahead of tonight’s 3-yr Note auction which kicks off the mid-month refinancing operation (10y & 30y deals to follow). The US 10-yr yield sets a new high at 1.13%, trying to break out on the upside of the standing upward trendchannel since August last year. The US yield curve bear steepens with yields rising by 0.2 bps (2-yr) to 1.4 bps (30-yr). German Bunds underperform slightly with yields adding 0.1 bp (2-yr) to 2.4 bps (30-yr). The dollar cashes in on its safe haven status after the recent recovery of US real rates. The tradeweighted greenback set a YTD high north of 90.50. EUR/USD is correcting to 1.2150. USD/JPY tests the upper bound of the downward trend channel since July in the low 104-region. EUR/GBP hovers listless in the low 0.90-zone.
The Kingdom of Belgium announced its intention to issue a new 10-yr syndicated benchmark deal (OLO 92; Oct2031) in the near term (likely tomorrow). It’s the country’s traditional kick-off to the funding year. There’s currently already €14.65bn outstanding in 2031 (OLO 75 Jun2031). That OLO trades around 9 bps below mid-swap. The Belgian debt agency expects this year’s gross borrowing requirement to be €43.61bn, mainly consisting of €22.77bn net financing (deficit), €15.51bn maturing debt and €4.5bn planned buy-backs. The gross borrowing requirement is €7.85bn lower than last year’s €51.46bn. The lion share of the funding will be raised through OLO issuance (€36.41bn), with EU loans (SURE; €4.2bn) and the agency’s EMTN & Schuldscheine programmes covering the remainder of the issuance need. In 2020, OLO issuance stood at €44.50bn. With regard to the long-term financing, the debt agency expects up to three new fixed-rate OLO benchmarks in two syndications, examining the possibility of a new very long one (max 50 years). Other possibilities include 15-yr, 25-yr or 30-yr deals with no debt outstanding in 2036, 2046 and 2051. The average life of the debt portfolio already reached 9.82 years by end November 2020 and it’s the debt agency’s aim to keep it above 9.25 years in 2021. Apart from the syndicated transactions, the debt agency has 8 set OLO auction dates, though these can be cancelled. At those regular moments, the debt agency can also tap its outstanding green OLO’s, though this year’s amount on offer of these environmental bonds is capped at €1.5bn.
News Headlines
The Hungarian Ministry of Finance reported a preliminary full year 2020 budget deficit of HUF 5.549 trillion. The December deficit alone jumped to a record HUF 2.25 trillion . Year-end spending rose sharply mostly related to assuming debt of hospitals and financing economic, health care, cultural and education projects. Last year, Hungary spent HUF 615 bn on medical expenses due to the corona pandemic. The government still expects the 2020 budget deficit to come at around 9% of GDP. The forint weakened to EUR/HUF 360.75, but was mainly due to overall market caution rather than related to country related news.
Norwegian December headline inflation as expected was reported at 0.4% M/M and 1.4% Y/Y (from 0.7% in November). Underlying inflation printed at -0.1% M/M, but rose from 2.9% Y/Y to 3.0% Y/Y (3.1% expected). The Norges bank will hold its first policy meeting of the year next week, on January 21. After rallying to EUR/NOK 10.27 at the end of last week, the kroon today fell prey to profit taking, currently trading near 10.40. The correction of the krone occurred as oil prices today showed tentative signs of topping out after Brent oil jumped temporary north of $56/b on Friday.
