巴黎银行-欧洲-宏观策略-欧洲央行是否落后于形势？-20190325-7页_1mb

FLASH | EUROPE - G10 INTEREST RATES SUMMARY

Core Content Overview

This document, authored by the Strategy & Economics team at BNP Paribas, discusses the potential impact of the European Central Bank's (ECB) monetary policy on interest rate markets, with a focus on inflation expectations and the market's perception of the ECB's policy stance. The analysis suggests that the ECB may be perceived as being behind the curve in its response to current economic conditions, potentially leading to a reconnection between the yield curve slope and inflation expectations, similar to the situation in 2016.

Key Messages

• Inflation expectations are unanchored again, with significant downward movements following the March ECB meeting and disappointing eurozone PMIs.
• The market is losing faith in the ECB's ability to respond promptly to economic headwinds, as it is not pricing any rate cuts until at least December 2019.
• The ECB's revised forward guidance and the announcement of TLTRO-III without clear details may have contributed to this perception.
• A potential bull flattening in the 10s30s curve is anticipated if inflation expectations continue to fall, as the short end remains anchored.

Trade Updates

• Long FRTR 0% 3/2024: Entry -4bp, Current -21bp, Target -25bp, Stop lowered to -20bp, Current P&L: 17bp.
• Long SPGB 0.35% 7/2023: Entry 21bp, Current 6bp, Target 0, Stop lowered to 10bp, Current P&L: 15bp.
• Stop Out: EUR 2y2y vs 10y10y steepener: Entry 156.5bp, Current 144bp, P&L: -12.5bp.
• Restrike: EUR 2y2y, 1 by 2 receiver spread: Entry 6.6bp, Current 9bp, Target 10.6bp, Current P&L: 2.4bp. Restructured to +0.10% -0.12% 1 by 2 receiver spread at 8bp.
• Take Profit: Receive EUR 5y5y IRS vs long 1.2 x US 5y5y inflation swap: Entry 122bp, Current 177bp, Target 180bp, Current P&L: 55bp.

Market Impact Analysis

• If the ECB is seen as behind the curve, inflation expectations may fall further, pushing rate hike expectations into the future.
• This could result in a bullish flattening of the yield curve as term premia are reduced due to low inflation expectations.
• The document suggests that the recent market moves align more with the second scenario (ECB behind the curve) than the first (ECB easing action).

Historical Context

• In 2016, there was a strong correlation between the 10s30s curve slope and 5y5y inflation expectations.
• The current situation may see this relationship re-establish itself, with the potential for a retest of the 5y5y inflation low of 1.25% if economic headwinds intensify.

Recommendations

• Reiterate trade ideas: Be long 5y France and Spain, and long a 1x2 receiver spread on EUR 2y2y.
• Take profit on the receive inflation position, as US inflation may also be affected by global disinflationary pressures.

Legal & Compliance Notes

• The document is non-independent research and is intended for Relevant Persons under MiFID II.
• It is not investment research and not subject to any prohibition on dealing ahead of dissemination.
• BNPP may have conflicts of interest, including acting as a market maker, advisor, or having financial interests in the securities discussed.
• No liability is accepted for any loss arising from reliance on the document's content.
• The document includes hypothetical and back-tested performance data, which should not be used as guidance for future performance.
• Confidentiality is emphasized, and the document may not be reproduced or distributed without prior written consent.

Additional Disclosures

• Options and ETFs: These are complex instruments with high risk, and the document includes important disclosures regarding them.
• U.S. Securities Laws: Certain securities may not be registered under U.S. law and are only available to Qualified Institutional Buyers or non-U.S. persons.
• Distribution Jurisdiction: The document is distributed by BNPP branches in various countries, including France, Germany, Belgium, Ireland, Italy, Netherlands, Portugal, and Switzerland, each with its own regulatory framework and disclosure requirements.

Conclusion

The document highlights the ECB's perceived inaction and the market's concern about the central bank's ability to respond to economic challenges. It provides trade ideas based on the potential for a bull flattening and legal disclaimers regarding the non-independent nature of the research and the risks involved.