PERU: BCRP Cuts By 25bp As Expected, Says Policy Rate Very Close To Neutral
Sep-12 08:54
- The BCRP cut its reference rate by 25bp to 4.25% last night, as expected by a majority of surveyed analysts. In the accompanying policy statement, the Board maintained a data dependent stance, but noted that with this decision the interest rate is now “very close to the level estimated as neutral”. Although the door to further easing remains open, several analysts think that the bar to another cut is relatively high and now see the central bank remaining on hold ahead.
- On inflation, the Board believes that the surprise fall of the headline rate to 1.1% y/y in August will be temporary and they expect it to approach the midpoint of the 1-3% target range by year-end. They also note the uptick in core inflation to 1.8% last month, and continue to see it around 2% in the projected horizon. 12-month ahead inflation expectations were at 2.18% in August, implying an ex-ante real policy rate of 2.07%.
- Meanwhile, almost all domestic economic activity indicators remain around the potential rate. On the external front, the committee no longer highlights the volatility in financial markets and now only sees downside risks to global growth in the medium term.
- Overall, the Board reiterates that future rate adjustments will depend on new information about inflation, particularly core inflation, inflation expectations and economic activity. The next MPC meeting is scheduled for October 9.
- Link to BCRP policy statement here.
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GERMAN AUCTION PREVIEW: 2.60% Aug-35 Bund
Aug-13 08:46
This morning, Germany will re-open its on-the-run 10-year 2.60% Aug-35 Bund (ISIN: DE000BU2Z056) for E5bln.
- The size of this auction is in line with the last reopen of the Bund on July 23.
- Demand metrics in German auctions have been a little mixed recently, and that also applies to the 10-year segment. At the last July 23 auction of the 2.60% Aug-35 Bund, the bid-to cover came in at 1.49x and the bid-to-offer at 1.14x - clearly on the weaker side, and a deterioration against the 1.63x / 1.24x seen at the initial opening of the line despite that being for a larger E6bln size. These metrics compare to a 1.38x - 2.84x range for bid-to-covers and a 1.06x - 2.17x range for bid-to-offers seen in German 10y auctions this year.
- At least the secondary market mid-price was below the low price achieved at recent German 10y auctions (the last time that was not the case was on April 23).
- Bund positioning currently appears short according to our Europe PI - full pdf here.
- Today's results will also be interesting to watch in the light of the Bund price action across the past two days, which lacked a clear headline driver, but notably brought 30y yields to 14-year highs.
- The next German auction will be E4.5bln of the 2.20% Oct-30 Bobl (ISIN: DE000BU25059) on August 19, while the 2.60% Aug-35 Bund will be re-opened on September 3, also for E5bln.
- Timing: Results will be available shortly after the bidding window closes at 1030BST/1130CET.
SWAPS: German Spreads Recover From Recent Lows Alongside Outright Bond Rally
Aug-13 08:36
German swap spreads and ASWs widen alongside the recovery rally in outright bonds this morning, recovering from multi-week/month lows registered yesterday.
- Bull flattening on the cash bond curve translates to outperformance for long end swap spreads & ASWs.
- Earlier today Commerzbank noted that “Schatz-ASW breached the recent range, briefly hitting 11bp vs. €STR yesterday. This marks the cheapest levels since early March when the German fiscal package was making headlines and slightly exceeds current German GC spreads vs. €STR. Without structural cheapening in repo rates and other front-end drivers, we expect Schatz to stay anchored with GC serving as cap similar to the past months and anticipate spreads will reverse".
CROSS ASSET: Equities and Bonds are extending gains, record high in the Emini
Aug-13 08:33
- Equities and Bonds are still extending higher, the US Emini prints a new all time record high on hope of a Fed cut in September.
- The German Bund is back above pre US CPI level, and next small resistance comes at 129.83.
- Some decent buying in the past few minutes in EGBs too, BTP in 2k, and already 53k lost traded for the Italian contract, as Bonds reverse Yesterday afternoon sell off
- The fall lower in Yields is putting the lid on the USD, new fresh lows against the GBP, EUR, MYR, INR, THB, SEK, CNY, AUD, NZD, CHF, JPY.
