International Interest Rate Strategist Fiscal Pressures and Swap Spreads

• Concrete financial support is yet to materialize for Greece. We expect the
market’s focus to shift to issuance and implementation risks.
• Our analysis of swap spreads suggests scope for 10yr Bunds to trade flat and 10yr gilts to trade north of 30bp over swaps.
• The upcoming supply profile clearly supports 30yr Bunds over 30yr gilts.
• The 30yr TIPS auction on 22 February is likely to be a success. We see scope for the 10s20s TIPS real yield curve to flatten. Euro BEs wideners look
interesting.
• We include our end-February index projections for the EGBI, the UK, US,
Canada, Australia and Japan.
• The week beginning 22 February sees $126bn of UST issuance in the 2-, 5-
and 7-year sectors (equivalent to 815k DV01 10-year futures). The net cash
requirement in Euro continues to remain non-supportive until the week
commencing 1 March.

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