FOREX: Progress with Japan Pressures JPY, While EUR Vols Look Contained into ECB

This morning, Finland will hold a conventional auction to a sell combined E1.0-1.5bln of the 3.00% Sep-34 RFGB (ISIN: FI4000571104) and the 2.75% Apr-38 RFGB (ISIN: FI4000546528). See below for views from Danske Bank and Nordea ahead of the auction:

• Danske Bank: “Finland has performed well versus peers such as Germany and Ireland”…“This is driven by the relative supply given that Finland only needs to raise some EUR 3-7bn to reach either 3.5% or 5% of GDP for defence spending relative to Germany where the borrowing requirement would rise by more EUR 60bn to EUR 120bn”.
  • “Rather than doing the country spread, then investors can take advantage of the steep ASW-curve, and we recommend buying RFGB 09/34 versus swap (€str) given the solid roll-down on the ASW-spread curve”.
  • “Regarding RFGB 04/38, there is not much roll-down on the ASW-spread curve as in the 5Y to 10Y segment”…“However, it does look cheap relative to the surrounding bonds RFGB 04/36 and RFGB 09/40, when we look at the butterfly on the ASW-spread curve”.
• Nordea: “Since Finland is one of the more well-equipped countries in terms of defense spending in the Eurozone, we reiterate our view from the last auction comment: all else equal, Finland should be less impacted by the overall increase in defense spending in the Eurozone”.
  • “Looking at the two bonds versus their most common peer, Austria, Finland is currently trading at favorable levels. If one is looking to add semi-core risk outside of France and Belgium, Finland appears to be a strong option”.
  • “Examining the curve for funded investors buying in ASW, the sweet spot in the 10Y sector is slightly shorter than 09/34. However, between the two bonds, RFGB 09/34 would be preferred in terms of risk-adjusted Carry & Roll. 

• As noted on the EU Cash Govie open, the Dollar started to pare some gains as Europe started to Join the session, this looks to be purely an FX move, with very little movements in US Govies, nor Equities.
• The Dollar prints session lows across the board, versus the EUR, GBP, AUD, NZD, NOK, SEK, ZAR, ILS, PLN, CNY, and CHF.
• Gold on the follow firms to a new record high, with the next projection now seen at $3034.5 - 2.382 proj of the Nov 14 - Dec 12 - 19 price swing.
• The Yen on the other hand, sees further lows across the majors.
• Immediate resistance in the USDJPY is still at 150.18 High Mar 5.

Euribor futures are -0.5 to -3.0 ticks through the blues, softening alongside Bunds ahead of today’s Bundestag vote on fiscal reforms. Signs of increased tensions between Israel/Hamas overnight has not generated similar geopolitical risk premium in rates markets as in the crude complex.

• ECB-dated OIS continue to price 31bps of easing through June, with upcoming data releases and tariff/fiscal developments key to monitor.
• Yesterday evening, Bank of Greece Governor Stournaras re-iterated his expectations for a 2% deposit rate by year-end (consistent with market pricing), while noting that it is too early to comment on the April and June decisions.
• This morning (0900GMT), Bank of Finland Governor Rehn participates in a public MNI Connect Event (sign-up link here).
• We regard Rehn as a centrist on the Governing Council, and thus a useful gauge of the median Governing Council view on specific topics.
• On March 11, Rehn largely echoed the data-dependent and meeting-by-meeting guidance from the March decision/policy statement.
• January trade balance data is due this morning, alongside the German March ZEW survey. ECB’s Escriva and Villeroy are also scheduled to speak.