NORWAY: NGBs Should Be Well Insulated From Increased European Defence Spending
Mar-06 10:47
Belatedly flagging a few headlines from the Norwegian government on Reuters this morning:
- “NORWAY PM: WILL PROPOSE SIGNIFICANT INCREASE IN UKRAINE SPENDING”
- “NORWAY PM: PREPARED TO MAKE CHANGES IN DEFENCE SPENDING PLAN”
- “NORWAY CONSERVATIVE PARTY OPPOSITION LEADER: WE AGREE UKRAINE SUPPORT SHOULD BE INCREASED SIGNIFICANTLY”
We don’t usually comment too much on Scandi fixed income markets, but Norway’s fiscal/issuance framework (whereby spending is financed through oil revenues) should partly insulate domestic government bonds (NGBs) from the burdens of increased Europe-wide defence spending.
- On Friday, Dankse Bank wrote that “we have a bias for lower US yields which should add support to our strategic bias of being received NOK rates vs not least EUR and SEK. The notion of more military spending in Europe could add support to that case as higher military spending in Norway would be financed via the oil fund and not NGB issuance. This disconnect in duration coming to the market supports tighter NOK-EUR spreads”.
- The 10-year NGB/Bund spread has tightened ~20bps since Tuesday’s close, while the SGB/Bund spread has seen a smaller 15bp narrowing.
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OPTIONS: Expiries for Feb04 NY cut 1000ET (Source DTCC)
Feb-04 10:43
- EUR/USD: $1.0250(E873mln), $1.0280(E910mln), $1.0300(E1.2bln), $1.0320(E1.0bln), $1.0375(E1.0bln), $1.0395-05(E1.4bln), $1.0425-35(E2.4bln)
- USD/JPY: Y152.00($500mln), Y154.00($663mln)
- AUD/USD: $0.6275(A$1.6bln), $0.6335-50(A$896mln), $0.6420(A$1.1bln), $0.6595-00(A$2.5bln)
BELGIUM T-BILL AUCTION RESULTS: 3/6/11-Month TCs
Feb-04 10:38
| Maturity | May 8, 2025 | Aug 14, 2025 | Jan 15, 2026 |
| Amount | E802mln | E1.003bln | E770mln |
| Target | E2.2-2.6bln | Shared | Shared |
| Previous | E2bln | E1.008bln | E1.615bln |
| Avg yield | 2.421% | 2.319% | 2.238% |
| Previous | 2.602% | 2.513% | 2.437% |
| Bid-to-cover | 2.68x | 1.51x | 2.54x |
| Previous | 1.96x | 2.36x | 2.48x |
| Previous date | Jan 14, 2025 | Jan 07, 2025 | Jan 14, 2025 |
GILTS: Holding Lower
Feb-04 10:35
Gilts remain lower on the day.
- Pressure was seen ahead of the GBP4.25bln auction of the 4.375% Mar-30 gilt, adding to weakness that stemmed from Canada & Mexico’s short-term U.S. tariff reprieve.
- Mixed auction results failed to provide any lasting support.
- Gilt futures as low as 92.45 post-auction before a recovery to 92.55.
- Initial support located at the 20-day EMA (92.11).
- Yields 3.5-6.0bp higher across the curve, 5s lead the sell off
- 10-Year spread to Bunds ~2.5bp wider at 212.3bp, next upside level at the Jan 20 close (213.3bp).
- Hawkish adjustments in GBP STIRs as gilts soften.
- 23.5bp of cuts priced for this week’s BoE decision (our preview will be published later today), 47bp of cuts showing through May.
- We look for 25bp cuts at both of those meetings.
- 78bp of cuts priced through December vs. ~80bp late yesterday.
- We believe that more data is needed before we can give a meaningful view on monetary policy beyond the Bank’s May meeting.
- SONIA futures little changed to -7.5.
- December highs in SFIZ5 remain untested.
- The recent run of dovish repricing may have reached its limit, unless we get a fresh catalyst.
- A limited UK calendar will leave focus on cross-asset cues and tariff-related headlines.
