巴黎银行-全球-宏观策略-第二轮量化宽松和新的欧元收益率预测-20190703-10页_1mb

G10 Interest Rates Summary

Key Messages

• BNP Paribas has revised its forecasts and introduced a new BTP/Bund trade idea based on updated ECB expectations.
• The end-2019 2y and 10y Bund yield forecasts have been lowered to -85bp and -50bp respectively.
• The 10y OAT/Bund spread is expected to tighten to 20bp, the 10y Bono/Bund spread to fall to 50bp, and the 10y BTP/Bund spread to fall below 170bp by year-end.
• The ECB is expected to cut the repo rate in September and October 2019, and announce a EUR40bn/month asset purchase programme (APP) in December 2019, which may last 6-9 months.

Trade Ideas

• New Trade: Investors who agree with the ECB APP call could benefit from the steep BTP curve by going long BTP Sep 49 versus Bund Aug 48.
  • Entry: 237bp
  • Target: 200bp
  • Stop: 250bp
  • Carry Profit: +1.2bp over 1 month
• Stay Long: The OAT invoice spread with a new target of 33-35bp.
• Stay Long: 15y OAT versus 7y Bono.

New EUR Rate Forecasts

APP Impact on Bund Yields

• A EUR35bn increase in Bund holdings has a 5.5bp dampening effect on yields.
• The pace of APP purchases is more critical than the level of excess liquidity in affecting Bund yields.
• The ECB is expected to purchase EUR360bn of assets in 2020, which could imply EUR58bn of Bund purchases, representing 35% of estimated 2020 Bund gross issuance.
• A flatter 10y Bund yield curve could pose issues for the banking sector, so the ECB may aim to avoid major imbalances.

Spread Forecasts

• Core Spreads: The 10y OAT/Bund spread is expected to return to 20bp, aligning with the new ECB APP call.
• Non-Core Spreads:
  • The 10y Bono/Bund spread is expected to tighten to 50bp.
  • The 10y BTP/Bund spread is expected to fall below 170bp.
• EGB Spreads: Likely to fully compress before the ECB announces QE.

Intrinsic Value Model

• The intrinsic value of 10y Bund yields is currently 17bp above the actual yield.
• To explain the current yield of -36bp, the model suggests a combination of lower inflation and increased excess liquidity.
• If the ECB purchases 50% of the gross issuance, the intrinsic value of the Bund yield could decrease further.

APP and Spread Dynamics

• The market is already pricing in significant ECB QE, and spreads are anticipated to compress before the official announcement.
• OATs have been benefiting from increased Japanese investor demand, while Bunds have seen outflows.
• The 10y OAT/Bund spread has room to return to the lower side of its PSPP range, around 20bp.

Key Insights

• The ECB's APP will be a major factor in determining the yield curve dynamics.
• The 10y BTP/Bund spread is expected to tighten significantly as the EGB curve flattens due to the repricing of rating downgrades.
• The intrinsic value of German ASW is currently below the market, with the 5y and 10y buckets around 3bp below estimates.
• If valuation rises to a 4-5bp premium, the 10y German ASW could return to the 55-60bp area.

Conclusion

BNP Paribas anticipates a significant impact of the ECB's QE2 on the yield curve and spreads, particularly for peripheral Eurozone bonds. The trade ideas focus on leveraging the expected compression of the OAT and BTP spreads relative to Bunds, with a central scenario of EUR40bn/month APP purchases. The intrinsic value model suggests that the ECB's asset purchases will have a material effect on Bund yields, and that the market may already be pricing in these expectations. Investors are advised to monitor the spread dynamics and consider the potential for a flatter EGB credit curve as the APP unfolds.