IRELND 5Y 800/860 (-60) BGB 5Y 275/285 (-10)
PGB 5Y 1100/1150 (-75)
ITALY 5Y 460/470 (-40) Core comparators
GGB 5Y 58/62 +100 (+1) DBR 5Y 83/86 (-1)
SPGB 5Y 385/395 (-35) FRTR 5Y 177/182 (-14)
NETHER 5Y 90/94 (-2)
SovX 5Y S5 339/342 (-12) RAGB 5Y 140/145 (-8)
Unwind of the panic which prevailed over the last few days. Some profit taking by clients and some panic hitting by street led to spreads gapping in. There is some hope that today’s Merkel-Sarkozy-Papandreou conference eliminates Greek default risk in the near-term. The apparent conundrum of Greece being wider and everything else being tighter on expected support for Greece is easily explained by the fact that no one has the appetite for Greek exposure (and the CDS hardly trades) but are playing it through sov risk on/off given the fact that a Greek default is going to lead to spreads blowing up across the board and conversely, a Greek “non-default solution” is going to lead to a broad rally. I don’t subscribe to the “orderly, contained, non-contagious default” argument (I’ve explained why in previous notes).
Today’s conference should set the tone for tomorrow’s open. Also Spanish issuance tomorrow (3-4bn; 7-9Y).
HSBC Global Research