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eakevens. Italy should announce details of its scheduled 26-Jan auction on Friday (21 January). The 10y and 30y benchmarks (BTPei-21 and ei-41) are good candidates for re-opening, but there is a risk Italy could issue a new 5y or 15y BTPei given little EURxt issuance in January (only EUR 1bn from Germany). Reminder: BTPeis generally look cheap versus OATei and especially against rich DBRei paper which have enjoyed a scarcity premium suggesting the BTPei supply will offer value. GBP: Breakevens are little changed on the week. December’s CPI was very strong at 3.7% y/y (versus consensus at 3.4%). Food, petrol and utility bills were strong as expected. But core was also strong at 2.9% y/y (+0.2 upward surprise) on recreation/goods prices despite weaker clothing. Meanwhile, RPI printed 228.4, +0.7% m/m, in line with consensus but below BNPP’s call. The strong CPI headline and core is not the ideal (policy) mix for breakevens MT given the risk of monetary tightening ahead, even though RPI does benefit directly from base rate hikes via MIPS ST. We continue to receive May MPC’s meeting – a rate hike is now 80% priced in. We continue to recommend taking profit on our favourite trade into 2011, long the UKTi-13 breakeven, after its 40bp performance net of carry in 2011 ahead of likely extension activity. The strong 25y Gilt auction confirms the bid for duration and we expect next week’s UKTi-55 syndication to meet with strong demand. The underperformance of the belly (10-20y) in nominal, real yield and breakeven space could continue at least in inflation space. Supportive demand conditions include pension funds in surplus likely LDI needs, coupon payments (GBP 770mn, 75% in the final week), 5y+ Linkers Index extension (+0.35y) versus a limited size (we estimate up to GBP 3bn notional) due to DMO Remit. Strong outright value and convincing RV arguments add further support. Our favourite trades include 10/50y real yield flattener and long UKTi-55 breakeven. See our upcoming extensive desknote, “GBPi: UKTi-55 Syndication – Selling Note” for further details. USD: As we expected, the Fed concentrated purchases in TIPS Jul-20 (56%) and TIPS Feb-40 (28%). The remaining 16% of the USD 1.74bn was scattered across the curve, with 7% (USD 179mm) spent on
Pricing Date Repo Rate Sett. Date Table 1: BNP Paribas Carry Analysis Benchmark Carry 20-Jan-11 Term 1 Term 2 2m 3m 6m 12m 0.42% 0.42% 0.34% 0.34% 0.34% 0.56% 21-Jan-11 01-Feb-11 01-Mar-11 21-Mar-11 21-Apr-11 21-Jul-11 23-Jan-12 Yield BE Real BE Real BE Real BE Real BE Real BE Real BE Short-end OATei Jul-12 -1.09% 2.15% -0.9 -1.4 31.8 29.2 -16.3 -20.7 -20.0 -26.5 29.5 22.0 -1.8 46.4 OATI Jul-13 -0.39% 1.87% -0.5 -1.1 14.0 10.7 10.4 4.7 21.0 12.2 48.4 33.0 48.3 23.8 TIPS Jul-12 -1.36% 1.80% -2.3 -2.8 1.3 -0.5 12.1 9.3 20.4 15.9 63.8 52.4 -92.6 -124.4 UKTi Aug-13 -1.66% 2.94% 0.9 -0.2 0.6 -3.3 2.3 -3.7 22.7 13.9 50.3 33.0 130.1 97.0 5y OATei Jul-15 0.50% 1.81% 0.4 -0.4 14.0 10.2 1.0 -5.6 3.7 -6.5 28.2 8.8 47.0 9.7 OATi Jul-17 0.80% 2.08% 0.2 -0.6 7.2 3.4 7.0 0.7 12.6 2.8 26.5 7.9 35.7 -0.6 TIPS Apr-15 -0.20% 1.88% 0.1 -1.1 3.5 -0.5 8.6 2.5 13.7 4.0 32.5 12.0 22.8 -23.0 UKTi Jul-16 -0.06% 2.81% 1.4 0.0 3.7 -1.0 6.3 -0.9 18.5 7.7 38.8 17.2 85.3 41.1 JGBI-4 June-15 0.86% -0.42% -1.7 -1.9 -2.6 -3.5 -9.1 -10.4 -22.6 -24.6 -14.0 -18.2 -2.4 -11.5 10y OATei Jul-20 1.33% 2.12% 0.4 -0.3 8.0 4.7 2.1 -3.6 4.3 -4.4 18.6 1.9 31.7 -0.8 OATI Jul-19 1.12% 2.16% 0.2 -0.5 6.0 2.4 6.1 0.1 10.8 1.5 22.6 4.9 31.4 -3.0 TIPS Jul-20 1.01% 2.29% 0.4 -0.7 3.1 -1.2 6.2 -0.3 9.7 -0.4 21.4 0.8 24.4 -18.9 UKTi Nov-22 0.80% 3.09% 1.5 0.4 8.3 4.3 9.6 3.5 14.0 4.9 29.0 10.7 46.0 9.3 JGBI-16 June-18 1.30% -0.44% -0.8 -1.2 -0.8 -2.2 -4.6 -6.4 -12.3 -15.1 -5.2 -10.8 5.6 -6.4 30y OATei Jul-40 1.61% 2.40% 0.2 -0.2 3.1 1.2 1.0 -2.2 1.9 -2.9 7.3 -1.8 12.2 -5.1 OATI Jul-29 1.58% 2.36% 0.2 -0.3 3.7 1.1 3.9 -0.4 6.8 0.1 13.9 1.3 19.9 -4.4 TIPS Feb-40 1.97% 2.61% 0.3 -0.5 1.7 -1.2 3.2 -1.2 5.0 -1.8 10.7 -3.3 13.9 -14.6 UKTI Mar-40 0.86% 3.58% 0.6 -0.1 3.4 0.8 3.9 0.0 5.6 -0.2 11.5 0.0 17.7 -4.8 Short-end Term 1 -> Term 2 Term 1 -> Term 2 Term 2 -> 3m 3m -> 6m 6m -> 12m OATei Jul-12 32.7 30.7 -43.2 -45.4 -3.7 -5.8 49.5 48.5 -31.3 24.4 OATI Jul-13 14.5 11.8 -1.6 -4.4 10.5 7.5 27.5 20.8 -0.1 -9.1 TIPS Jul-12 3.6 2.3 11.7 10.4 8.3 6.6 43.4 36.5 -156.4 -176.7 UKTi Aug-13 -0.2 -3.0 2.2 -0.6 20.4 17.7 27.7 19.1 79.8 64.0 5y OATei Jul-15 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 OATi Jul-17 13.6 10.5 -11.0 -14.2 2.7 -0.9 24.5 15.3 18.8 0.8 TIPS Apr-15 7.0 4.0 0.8 -2.2 5.5 2.1 14.0 5.1 9.1 -8.5 UKTi Jul-16 3.4 0.5 6.0 3.1 5.1 1.6 18.8 8.0 -9.7 -35.0 JGBI-4 June-15 -0.9 -1.6 -8.2 -8.8 -13.5 -14.2 8.6 6.4 11.7 6.6 10y OATei Jul-20 7.6 4.9 -4.8 -7.5 2.2 -0.9 14.3 6.3 13.1 -2.7 OATI Jul-19 5.8 2.9 0.9 -2.0 4.7 1.4 11.7 3.3 8.9 -7.8 TIPS Jul-20 2.6 -0.4 3.8 0.8 3.5 -0.1 11.7 1.2 3.0 -19.7 UKTi Nov-22 6.8 3.9 3.2 0.4 4.4 1.3 14.9 5.8 17.0 -1.4 JGBI-16 June-18 0.0 -1.0 -4.5 -5.4 -7.7 -8.6 7.1 4.2 10.8 4.4 30y OATei Jul-40 2.9 1.4 -1.7 -3.2 0.9 -0.8 5.4 1.1 4.9 -3.3 OATI Jul-29 3.5 1.4 0.7 -1.3 2.8 0.5 7.1 1.2 6.0 -5.7 TIPS Feb-40 1.4 -0.7 1.9 -0.2 1.8 -0.6 5.7 -1.4 3.2 -11.3 UKTI Mar-40 2.7 0.9 1.3 -0.5 1.7 -0.2 5.8 0.2 6.3 -4.9 Source: BNP Paribas Shahid Ladha / Herve Cros / Sergey Bondarchuk 20 January 2011 Market Mover, Non-Objective Research Section 55 www.GlobalMarkets.bnpparibas.com
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Market Economics | Interest Rate St
Page 3 and 4: The obvious focal point is the Summ
Page 5 and 6: such shocks at the moment, such as
Page 7 and 8: US monetary conditions, because the
Page 9 and 10: Chart 9: Asia- Ifo Expected Inflati
Page 11 and 12: President Bullard was generally sup
Page 13 and 14: Canada: Betting on Investment and E
Page 15 and 16: Eurozone Inflation: Forecast Revisi
Page 17 and 18: optimism on Germany, in last week
Page 19 and 20: On the basis of the relationship be
Page 21 and 22: The nominal policy rate and nominal
Page 23 and 24: households. Furthermore, the statis
Page 25 and 26: Norway: Norges Bank Preview • We
Page 27 and 28: Japan: New Cabinet and Policy Outlo
Page 29 and 30: Japan: Capex Outlook • Core machi
Page 31 and 32: US/EUR Spreads: Further Tightening
Page 33 and 34: US: Could the Short End Have a Puls
Page 35 and 36: Trades with higher hit ratio and Sh
Page 37 and 38: ange bound, as we expect, given tha
Page 39 and 40: EUR: Liquidity is No Stress • The
Page 41 and 42: EMU Debt Monitor: Trade Ideas • K
Page 43 and 44: EMU Debt Monitor: CDS Analysis Char
Page 45 and 46: EMU Debt Monitor: Redemptions • O
Page 47 and 48: EUR: Buy 3m5y Straddle vs 3m10y Str
Page 49 and 50: Global Inflation Watch Eurozone HIC
Page 51 and 52: Table 2: BNP Paribas' Inflation For
Page 53: Inflation: With Supply Comes Opport
Page 57 and 58: Germany 10y: MT 61.8% (3.12) break
Page 59 and 60: Travelling Asia • Inflation has e
Page 61 and 62: Capitalism requires business cycles
Page 63 and 64: EURUSD Rally Eyes 1.3750-1.3950 •
Page 65 and 66: Currency Spot Trade Recommendations
Page 67 and 68: than an unrelenting rise in prices
Page 69 and 70: Economic Calendar: 21 - 28 January
Page 71 and 72: Key Data Preview 120 115 110 105 10
Page 73 and 74: Key Data Preview Chart 5: French Sa
Page 75 and 76: Key Data Preview 10 5 0 -5 -10 -15
Page 77 and 78: Key Data Preview 3 2 1 0 -1 Chart 1
Page 79 and 80: Economic Calendar: 31 Jan - 25 Feb
Page 81 and 82: Next Week's T-Bills Supply Date Cou
Page 83 and 84: Economic Forecasts GDP Year 2010 20
Page 85 and 86: Market Coverage Market Economics Pa
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