EU FINANCIALS: UBS - New Issues - $ B'mark PNC5.5 AT1 & PNC10 - FV
Feb-05 09:35
Exp. Ratings: Baa3/BB/BBB- for both tranches.
- PNC5.5
- IPT: 7.75%
- FV: 7.25%
- looking at the UBS 4.375% Perp which yields 7.1% with a back end spread of 331bps and the UBS 7.75% Perp which yields 6.75% and has a back end spread of 416. Both bonds are trading well inside call levels, but the 85bps of higher float spread is worth around 20bps of yield.
- At 7.25% the back end spread will be c.295bps, which is 46bps inside the UBS 4.375% perp - for which I think the bond should trade at least 0.2% higher in yield.
Other factors we consider are the duration of the UBS 4.375% perp, with a low coupon, is higher than its workout might imply from the chat, this impact is offset somewhat by its low price of 87bps, which should cause it to trade tighter.
- PNC10
- IPT: 7.875%
- FV: 7.5%
- We use the same logic for the longer bond - it should be noted that we view that 5-10 USD AT1 curve in general as very flat, considering both the workout extension and the extra time value of the option.
- The UBS 9.25% Perp , with its 475bps back end spread will trade much tighter than it would with a lower back end. At 6.9% yield it trades c15bps inside the 6 year UBS 4.375% perp with its 331bps back end.
- If this UBS bond comes at 7.5% - only a 25 bp pickup vs the 5.5y - it will trade with a c302bps float spread - only a 7bp pickup on the 5 year.
- The recently issued & - similar quality - NWG 7.3% perp , trading at 7.55% is a relatively good indicator as well
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EUR: Single Currency Extends Bounce Following Eurozone/Germany Data
Jan-06 09:32
- Markets are continuing to pare ECB easing bets following the higher-than-expected data releases across the Eurozone PMIs and the German inflation print for Hesse. As such, the Euro is strengthening and is among the best performers in G10.
- Alongside the softer greenback, EURUSD has extended its appreciation above the prior breakout level of 1.0335, taking the pair to an intra-day high of 1.0369. Overall, the trend needle continues to point south, and initial firm resistance is at 1.0414, the 20-day EMA.
- EURJPY is standing out, rising 0.75% at typing amid the notable weakness for the Japanese Yen overnight. We have traded above the Jan 02 high while the focus will be on 165.04, the Nov 15 high and a key short-term resistance.
MNI: UK FINAL DEC SRVICES PMI 51.1 (FLASH 51.4); NOV 50.4
Jan-06 09:30
- MNI: UK FINAL DEC SRVICES PMI 51.1 (FLASH 51.4); NOV 50.4
STIR: 100bp Of ECB Cuts Priced For ’25 After Hesse CPI
Jan-06 09:26
Firmer-than-expected Hesse CPI data out of Germany (based on comparisons with the national CPI expectations) drives further hawkish repricing on the ECB-dated OIS strip, with 100bp of cuts now priced through ’25.
- This compares to 115-120bp seen just before the Christmas break.
- ~26bp and ~27bp of cuts show over the next two ECB decisions, respectively, as market-implied odds of an upsized rate cut are pared further.
- A reminder that methodology alterations and regional holidays means that Hesse provides the only major regional CPI release ahead of this afternoon’s German national CPI release.
| ECB Meeting | €STR ECB-Dated OIS (%) | Difference Vs. Current Effective €STR Rate (bp) |
| Jan-25 | 2.661 | -25.8 |
| Mar-25 | 2.393 | -52.6 |
| Apr-25 | 2.204 | -71.5 |
| Jun-25 | 2.080 | -84.0 |
| Jul-25 | 2.038 | -88.1 |
| Sep-25 | 1.971 | -94.8 |
| Oct-25 | 1.939 | -98.0 |
| Dec-25 | 1.919 | -100.0 |
- Euribor futures are 3.0-5.5bp lower at typing.
- ERZ5 8.0 off its November low and 11.0 off its October low.
- SOFR/Euribor and SONIA/Euribor Dec ’25 spreads continue to move away from their late ’24 highs.
Fig. 1: SOFR/Euribor and SONIA/Euribor December ’25 (Z5) Spreads
Source: MNI - Market News/Bloomberg
