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Analysts discuss the scope of tightening in Bund swap spreads and the impact on SSA spreads
OATs and OLOs could weaken further versus Bunds while southern European countries and EU continue to paint a positive picture
Uncertainty looms large as presidential race far from clear and budget negotiations potentially ‘highly challenging’
Summer in full swing but first two weeks of August not completely off the cards for non-euro deals
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Political risks started to loom on the horizon for the sovereign, supranational and agency market this week, as Russian troops assembled on the Ukrainian border, Italian economic figures revealed that the country fell back into recession in the first half of this year and even the possibility of Scotland’s independence from the UK flashed across market participants’ radars. -
Spain could benefit at a bond auction this week from poor growth figures from Italy, as investors’ attention is likely to shift to the faster growing of the eurozone periphery countries. But any boon for Spain would be a rare glimmer of joy amid a disappointing week for peripheral sovereigns’ yields.
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Greece shaved a few basis points from its short term funding costs at a bill auction on Tuesday. But its 10 year spread over Germany widened by around 20bp on Tuesday, compared to a few basis points of widening elsewhere in the periphery — a move that may be the result of the latest plans for its economic recovery.
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Portugal’s bond yields dropped in secondaries on Monday, along with most other eurozone periphery countries, after the Bank of Portugal’s decision over the weekend to split Banco Espírito Santo into a good bank — which will receive an injection of public funds — and a bad bank. While Portugal has no scheduled debt sales until a bill auction on August 20, Spain and Greece are both in action this week — and bankers are also predicting syndications for the periphery in a few weeks.
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Banco Espírito Santo reported a €3.6bn loss this week, but the Portuguese soveriegn looks safe from contagion. Its $4.5bn October 2024 from four weeks ago has tightened versus swaps since pricing.
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The news that National Front leader Marine Le Pen is ahead in the French presidential race polls will provoke nothing more than a wearied sigh from most in the market. After a strong showing from anti European Union parties in May’s European elections, which the markets took in their stride, it seems that politics can’t hurt the feel-good buzz in European debt markets spurred on by the European Central Bank’s easing policy. But market participants can’t afford to take their eyes from political developments.
