EU CREDIT SUPPLY: Eurobank 11.25NC6.25 €400m WNG Tier 2 - Books

The dovish repricing in the EUR short end, after ECB Executive Board member Schnabel gave further details re: her comfort with the market pricing the next ECB move as a hike, leaves EGB spreads vs. Bunds little changed to ~1bp tighter.

• Peripheral paper benefits the most, with BTPs outperforming.
• 70bp remains the key level to watch in both BTP/Bund & OAT/Bund spreads.
• Moves back above the level in the former have been limited since the break below earlier this month, while we have previously suggested that the level may continue to provide support for the latter through year-end after the French parliament failed to agree on a Budget proposal.
• Seasonal upticks in supply are due in January. If syndications are met with firm demand, then expect the now customary frontloading of supply by debt offices.
• Our summary of 2026 funding plans can be found here.

The People’s Bank of China is still likely to cut interest rates and reserve requirement ratios in Q1 2026, given increased downward pressures and a higher comparison base, said Wang Qing, analyst with Golden Credit Rating after the benchmark Loan Prime Rates were kept unchanged on Monday. Dong Ximiao, chief researcher at Merchants Union Consumer Finance, said the probability of a RRR cut is greater than that of an interest rate cut, and the PBOC will also place greater emphasis on leveraging structural tools to support technological innovation, green development, and boosting consumption. (Source: Shanghai Securities News)

The yuan is expected to further appreciate against the U.S. dollar, and reach the 6.0 level in the long run, Yicai.com reported. In addition to the falling dollar index following the Federal Reserve’s rate cut, increased settlement of foreign exchange before the Spring Festival may accelerate the appreciation of the yuan, which will further encourage the release of pent-up forex settlement demand, the newspaper said, citing analysts. Huang Qifan, former mayor of Chongqing city, recently said that the pair will rise from the current 7.0 level to around 6.0 within the next ten years, which could help to achieve the country's 2035 goal of doubling per capita GDP from 2020.