4 February 2011 Economics & FI/FX Research Curves & Crosses UniCredit Research page 1 See last pages for disclaimer. False trends still false friends Fixed Income ■ FI Strategizer : A dovish Bernanke should offer some relief to USTs but US auctions and discussions on the debt ceiling should act in the opposite direction, keeping UST yields relatively stable. Given the light data calendar, focus in the EMU will remain on the political debate ahead of the Feb 15 Ecofin meeting and the crucial end March EU summit. ■ EU Portfolio Strategy : Given the high uncertainty ahead of important political decisions, we prefer to stay duration neutral with barbells. We also increase exposure to Italy and Spain to exploit positive momentum. ■ ECB : Trichet was very careful to avoid stepping up his inflation rhetoric, emphasizing the distinction between near-term and medium-term price pressure and the fact that CPI expectations remain firmly anchored. This was not enough to trigger a significant re-pricing of Euribor futures. ■ MM : Strong demand at this week's MRO was due to technical factors rather than renewed MM tensions. We expect a big drop at next week's MRO (EUR 160bn vs. EUR 213); demand at the 1M LTRO may exceed the EUR 70bn expiring. The EONIA should stabilize around 1%. ■ Trade Idea : Ahead of next week's exchange auction, we suggest switching from BTP Feb18 into BTP Feb12 in ASW, as they appear respectively rich and cheap in their segment. ■ Inflation : Inflation accelerated to 2.4% in January, and the recent spike in oil prices increases chances that this will not be the peak. ■ Supply Corner : Next week, we expect a subdued EUR 6/7bn of gross supply (all from core). Redemptions will be zero. The favorable environment keeps the likelihood of a syndicated deal in the EMU high. Greece and Italy will hold T-bill auctions. The US will sell USD 72bn of 3Y, 10Y & 30Y UST. Forex ■ FX Strategizer : “False trends” that prove “false friends” still appear to be the main characteristic of the FX market. Due to geopolitical risk, switches between risk on and risk off will continue next week amid a light data calendar, apart from Bernanke’s testimony before the US House. ■ EUR: EUR bulls suffered following Trichet’s press conference and US labor data: market sentiment should remain EUR positive, but its recent retreat will lead to less aggressive long positioning in the coming days. ■ JPY: EUR strength and USD weakness proved to be the key drivers again for USD-JPY and EUR-JPY. We do not expect USD-JPY to break below 81/80.50 and EUR-JPY should stay in the 110.50/113 band. ■ CHF: USD-CHF is still struggling between 0.93 and 0.95 in the wake of continuing swings in risk appetite. For the same reason, we still favor selling EUR-CHF on a rally above 1.30. ■ GBP: We remain positive on cable, but this pair may now take a breather before the next intermediate key level of 1.65. At the same time, EUR- GBP should be sold again above the 0.85 area. ■ The three dollars: The Aussie dollar should stay firm above parity, while the Kiwi dollar should at least hold the line above 0.77. The USD-CAD “love affair” with parity should not see new signals in either direction. ■ Nordics: As expected, divergences between EUR-SEK and EUR-NOK have been progressively absorbed. The depreciation path of these two cross rates should thus remain intact. More insight in our monitors: Swap Curve – EGB spreads – Money Market – – FX Monitor – Beta analysis – FX Correlation – FX Hit Parade – Data Calendar – Forecasts . MARKET PRICES & FORECASTS Actual Mar11 Jun11 Sep11 Dec11 US FedFunds 0.25 0.25 0.25 0.25 0.25 2Y UST 0.74 0.60 0.75 1.00 1.25 10Y UST 3.60 3.15 3.40 3.70 4.00 EUROZONE Refi 1.00 1.00 1.00 1.00 1.25 2Y Bund 1.41 1.00 1.10 1.40 1.75 10Y Bund 3.24 2.85 3.05 3.35 3.50 UK Base rate 0.50 0.50 0.50 0.50 0.75 2Y Gilt 1.48 1.10 1.15 1.30 1.65 10Y Gilt 3.80 3.50 3.55 3.65 3.80 (10Y, bp) US - EU 36 30 35 35 50 US - UK -20 -35 -15 5 20 UK - EU 55 65 50 30 30 Swap Spread (10Y, bp) US 12 5 5 0 -10 EUROZONE 27 25 30 20 15 UK 16 10 20 30 40 Currencies EUR-USD 1.36 1.27 1.35 1.38 1.41 USD-JPY 82 82 83 85 87 GBP-USD 1.61 1.52 1.62 1.68 1.75 EUR-CHF 1.30 1.28 1.32 1.34 1.36 INCREASED EONIA VOLATILITY 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 -400 -300 -200 -100 0 100 200 300 400 EONIA (lhs) Excess liquidity smoothed (rhs) Source: Bloomberg, UniCredit Research Head of Global FI & FX Research Michael Rottmann +49 89 378-15121 [email protected]Editor Luca Cazzulani +39 02 8862-0640 [email protected]Editorial deadline Friday, February 04, 2011 15:30 Prices as of Friday, February 04, 2011, 15:00 Bloomberg: UCGR Internet: www.research.unicreditgroup.eu
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4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 1 See last pages for disclaimer.
False trends still false friendsFixed Income
■ FI Strategizer: A dovish Bernanke should offer some relief to USTs but
US auctions and discussions on the debt ceiling should act in the
opposite direction, keeping UST yields relatively stable. Given the light
data calendar, focus in the EMU will remain on the political debate ahead
of the Feb 15 Ecofin meeting and the crucial end March EU summit.
■ EU Portfolio Strategy: Given the high uncertainty ahead of important
political decisions, we prefer to stay duration neutral with barbells. We
also increase exposure to Italy and Spain to exploit positive momentum.
■ ECB: Trichet was very careful to avoid stepping up his inflation rhetoric,
emphasizing the distinction between near-term and medium-term price
pressure and the fact that CPI expectations remain firmly anchored. This
was not enough to trigger a significant re-pricing of Euribor futures.
■ MM: Strong demand at this week's MRO was due to technical factors
rather than renewed MM tensions. We expect a big drop at next week's
MRO (EUR 160bn vs. EUR 213); demand at the 1M LTRO may exceed
the EUR 70bn expiring. The EONIA should stabilize around 1%.
■ Trade Idea: Ahead of next week's exchange auction, we suggest
switching from BTP Feb18 into BTP Feb12 in ASW, as they appear
respectively rich and cheap in their segment.
■ Inflation: Inflation accelerated to 2.4% in January, and the recent spike
in oil prices increases chances that this will not be the peak.
■ Supply Corner: Next week, we expect a subdued EUR 6/7bn of gross
supply (all from core). Redemptions will be zero. The favorable
environment keeps the likelihood of a syndicated deal in the EMU high.
Greece and Italy will hold T-bill auctions. The US will sell USD 72bn of
3Y, 10Y & 30Y UST.
Forex
■ FX Strategizer: “False trends” that prove “false friends” still appear to be
the main characteristic of the FX market. Due to geopolitical risk,
switches between risk on and risk off will continue next week amid a light
data calendar, apart from Bernanke’s testimony before the US House.
■ EUR: EUR bulls suffered following Trichet’s press conference and US
labor data: market sentiment should remain EUR positive, but its recent
retreat will lead to less aggressive long positioning in the coming days.
■ JPY: EUR strength and USD weakness proved to be the key drivers
again for USD-JPY and EUR-JPY. We do not expect USD-JPY to break
below 81/80.50 and EUR-JPY should stay in the 110.50/113 band.
■ CHF: USD-CHF is still struggling between 0.93 and 0.95 in the wake of
continuing swings in risk appetite. For the same reason, we still favor
selling EUR-CHF on a rally above 1.30.
■ GBP: We remain positive on cable, but this pair may now take a breather
before the next intermediate key level of 1.65. At the same time, EUR-
GBP should be sold again above the 0.85 area.
■ The three dollars: The Aussie dollar should stay firm above parity, while
the Kiwi dollar should at least hold the line above 0.77. The USD-CAD
“love affair” with parity should not see new signals in either direction.
■ Nordics: As expected, divergences between EUR-SEK and EUR-NOK
have been progressively absorbed. The depreciation path of these two
cross rates should thus remain intact.
More insight in our monitors: Swap Curve – EGB spreads – Money Market –
– FX Monitor – Beta analysis – FX Correlation – FX Hit Parade – Data
The main driver for the euro this year will remain EU periphery tensions. The recent rally up to 1.37 may
have created a floor, but a partial retreat is still possible as markets remain fragile and volatile. In any case,
abating EMU jitters in 2H11, the start of the ECB tightening cycle in 4Q11 and increasing focus on US
issues should offer the euro a boost above 1.40 and probably towards 1.45.
JPY
As expected, S&P’s country downgrade did not have a dramatic impact on the yen and we are still penciling
in a muted USD-JPY trajectory for 2011 between the 82-87 trading band, also taking into account that
Beijing is unlikely to allow a sharp CNY revaluation this year as well. EUR-JPY upside potential, mostly in
2H11, when market tensions are expected to soften, should remain contained, not exceeding the 120 area.
CHF
Despite the 1.30 level having been re-tested, selling EUR-CHF on a rally is favored, at least during 1H11,
when new record lows should be the theme. The room for a EUR-CHF recovery in 2H11, in the wake of less
nervous market conditions, should be limited, too, and would hardly exceed the 1.35 area. USD-CHF should
remain under pressure in the 1.00-0.95 band for most of 2011.
GBPThe BoE will not follow the Fed on QE and will gradually start hiking rates in 4Q11 and continue in 2012.
Cable should return back above 1.70 on a 12M horizon, while EUR-GBP should slide below 0.85 over time.
Pacific Rim &the CAD
The three dollars should stay firm against the USD, but the Aussie dollar might outperform its New Zealand
cousin due to a slightly better economic picture at home, despite the negative impact of floods in the near
term. We also see a mild USD-CAD rise in 1H11, followed by a return towards parity again, as the BoC will
increase rates further in 2H11.
Nordic Block
We expect EUR-SEK and EUR-NOK to fall further this year, but their slide should occur at a slower pace
than in 2010 due to a less aggressive tightening pace. We target EUR-SEK and EUR-NOK at the 8.80 and
7.70 level, respectively, by 4Q11.
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 4 See last pages for disclaimer.
Favorite Trades
FI Trades
Type Trade Rationale Entry date Entrylevel
Act. Stop Target P&L(bp.)
Curvetrades
Buy UST 30Y SellUST 2Y
The UST 2/30Y spread is very steep and currently trades athistorical highs. We see scope for a tightening of the spread inthe short term.
21-Jan-11 398 398 450 300 0.4
Buy DBR Jan16 vs.OBL Oct13 andDBR Jan20
The 2/5/10Y barbell on the German curve has cheapened tointeresting levels. The 5Y has been under pressure recently andwe expect it to outperform the wings in the near term.
The Belgian 5Y CDS trades flat vs. Italy, while on the cashmarket Italy trades wider. We set up a trade on CDS and on thecash to exploit such a misalignment, expecting the two marketsto realign.
21-Jan-11 -10 -6 -50 75 3.7
EMU crosscountry
Sell PGB Jun20Buy IRISH Oct20
If Portugal is forced to tap the EFSF (which we expect), its yieldcurve will rise relative to other countries which have alreadyasked for financing.
21-Jan-11 193 180 250 100 13.0
MoneyMarket
Buy Libor Dec11 As we do not expect the Fed to hike rates in 2011, we think Liborcontracts price in a too high level for rates.
21-Jan-11 0.74 0.78 1.00 0.30 -3.5
Buy Euribor Sep11 The recent remarks on inflation by the ECB have put the shortterm rates under pressure. As we expect the first hike in 4Q weregard the Sep contract as attractive.
21-Jan-11 1.585 1.650 1.85 0.75 -6.5
Receive EONIApay OIS 1M
Falling excess liquidity has put upward pressure on moneymarket rates taking the EONIA well above 1%, we expectliquidity conditions to normalize and this should speak for anEONIA index not far from 1%. Hence, we consider the 3M OIS at0.85% as relatively low.
28-Jan-11 18.50 12 0.00 40 11.6
SUMMARY TABLE
FI Open Trades 23
FI Closed Trades 12
FI Total Trades 35
Update 4-Feb-11
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 5 See last pages for disclaimer.
FX Trades
SHORT-TERM SPOT TRADES
Cross Position Start EntryLevel
Target CurrentSpot
Stop 3M Carry % Return P/L netEUR
Rationale / Status
EUR-CHF short 14-Jan-11 1.2950 1.2200 1.2910 1.3300 -0.0025 0.31% 2.711 Ongoing EMU sovereign crisisand USD weakness to furthersupport CHF safe-haven-status
Cable long 21-Jan-11 1.5880 1.6500 1.6172 1.5560 0.0014 1.84% 21.556 We take profit at current levels,as we expect the upward trendto be interrupted next week
P/L Open Trades 2.711
P/L Closed Trades 21.556
Update 4-Feb-11 09:30hCET
P/L Total Trades 24.267
Note: P/L Net EUR also includes carry cost calculations and refers to a notional amount (1mn EUR or USD). Source: Bloomberg, UniCredit Research
MEDIUM-TERM OPTION STRATEGIES
Strategy Direction Start Maturity Strike CurrentSpot
EntryLevel
Actual % Return P/L netEUR
Rationale / Status
EUR-GBPstrangle
short 14-Jan-11 18-Jan-12 0.89-0.79 0.8435 4.40% 3.85% 0.55% 5.500 We take profit at current as weexpect increasing volatility inthe run-up to both BoE ratedecision and Inflation Report
EUR-NOKbarrier put
longup & out
21-Jan-11 25-Jul-11 7.85KO 8.15
7.8170 1.25% 1.68% 0.43% 4.300 We take profit at current levelswith the trade now well in-the-money
EUR-USD
call spread
long 28-Jan-11 01-Aug-11 1.40-1.50 1.3643 1.73% 1.60% -0.13% -1.300 Political efforts to overcome thedebt crisis have beenintensified in recent days
UniCredit Research page 8 See last pages for disclaimer.
Bernanke will testify before the House on Wednesday. On the economic outlook the
Chairman will likely restate that the recovery is somewhat stronger but not strong enough to
bring unemployment down to a level that is acceptable for the Fed. Overall we expect a
dovish Bernanke, in line with the recent FOMC minutes and his previous statements.
On QE2, Bernanke will likely reiterate the need to continue with the program while it is still
early to expect hints of a possible extension after June.
Finally, the Chairman may reiterate the necessity to raise the debt ceiling and not to use it as
“the bargaining chip in the discussion for spending cuts”. This is likely to bring the debate
back to the public finance issue, especially as the White House prepares to unveil its budget
proposal for 2012 on 14 February.
Next week, USTs should be moderately supported by Bernanke testimony. On the other
hand, US supply an the debate on fiscal policy might put some pressure on bonds. Overall,
the net effect should be neutral, with yields level likely unchanged at the end of the week.
Also in the EMU the data calendardoes not offer much inspiration…
In the EMU, the data calendar will be also rather light next week. Germany will release
factory orders and industrial production for December. We expect this data to confirm that
growth remains strong although this should not be much of a mover given that the strength of
the German economy is no longer a surprise.
…neither does primary marketactivity…
In the primary market, there is light activity scheduled for next week (EUR 6/7bn) and
mostly coming from core countries (the Netherlands and Germany). Italy and Greece will sell
T-bills and we expect them to register good results in line with the recent trend.…so investors may startconcentrating on the Ecofin andEurogroup meetings the followingweek
Given the lack of major market movers next week in the EMU, investors will start focusing on
the Ecofin meeting scheduled for 14 February. There are mounting expectations of what
European policymakers will decide on as a solution to the eurozone crisis and there is a clear
risk of disappointment. Markets are not expecting the decision on a solution before the end of
March, but any hints of progress towards a possible solution might spark further optimism and
lead to a further tightening of periphery spreads.
Investors will closely watch the BoEmeeting
In UK, we do not expect the BoE meeting to bring relevant surprises.
As a matter of fact, the vote split in January (another MPC member joined the hawkish camp)
showed that discontent about the current level of inflation is rising within the MPC. However,
the very disappointing GDP reading was not known at the time of the January meeting.
Although probably affected by unfavourable weather conditions, the loss of momentum was
quite abrupt. Against this backdrop, the BoE is unlikely to take the decision to increase the
repo rate any time soon and we still expect the first hike not earlier than in 4Q this year.
Little reason to expect a correctionto the Gilt yield rise over the last fewmonths
A strong IP number in the UK next week could fuel further speculation that the BoE may
embark on a hiking cycle sooner rather than later. We see little reason in this scenario for
rates to correct the sell-off over the last few months. Gilts should thus remain under
pressure next week as well.
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 9 See last pages for disclaimer.
Real Money Section: Euroland Portfolio Strategy
Make it or break itMichael Rottmann (UniCredit Bank)
Total return for the following combinations of bucket & countries are calculated using EFFAS indices of total return: EUR 7-10, EUR 1-3, US 7-10, US 1-3, UK 7-10,UK 1-3, JP 7-10, JP 1-3. CCTs total return is calculated using MTS index
Source: Bloomberg, EFFAS, UniCredit Research (all tables and charts in this page)
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 14 See last pages for disclaimer.
Money Market Monitor
EONIA experiencing a roller-coaster rideLuca Cazzulani(UniCredit Bank Milan)+39 02 8862 [email protected]
The ECB press conference on Thursday was moderately dovish but, as anticipated, did
not lead to a significant re-pricing of monetary policy expectations. The December
Euribor contract still trades above 1.80%, a level we regard as attractive. The 2Y Bund yield
initially fell to 1.35% but the rally soon lost steam.
Strong demand at the 1W MRO isrelated to technical factors …
We expected strong demand at the 1W MRO, but the increase in the number of bidders
was even larger than anticipated: 310 banks bid EUR 213bn in liquidity, EUR 48bn more
than the amount expiring. The increase in demand is mainly related to technical reasons
and does not signal a return of tensions in the money market: due to a short
maintenance period, banks have not been able to smooth their borrowing and they did not
accumulate black numbers in the first part of the maintenance period. Demand for liquidity
should also remain elevated in the first part of the new reserve period (which will begin on 9
Feb) as banks will likely front-load their liquidity needs.Need for liquidity also evident inthe liquidity draining operation
That banks are short liquidity is also evident in the ECB liquidity-draining operation.
Not only did banks bid an amount lower than that offered by the ECB (EUR 68bn vs. EUR
76.5bn) but rates at which banks are willing to deposit at the ECB also rose.
Oddly enough, banks deposited EUR 25bn with the ECB, even if they were short liquidity.
Excess liquidity and EONIA on aroller coaster
Excess liquidity has experienced a roller-coaster ride. At the beginning of the week it was
as low as EUR 12bn while it increased to almost EUR 100bn at the end of the week.
The EONIA reflected the strong liquidity demand in the interbank market, rising to
above 1% for a few days during the week. In the latter part of the week, it has dropped
towards 0.80%.
The Euribor 3M has also been under pressure, rising to 1.09, while the 6M reached
1.34%.
Next week, we expect a moderationin demand for liquidity
Next week, we expect a moderation in demand for liquidity, given that a new reserve period
will start. EUR 70.5bn will expire from the last 1M LTRO. Investors will probably roll over a
larger amount of liquidity, particularly after they were relatively short liquidity in the last
reserve period. Demand at the 1W MRO, on the contrary, should ease considerably after last
week's spike. We expect demand of about EUR 150bn at the 1W MRO and around EUR 80bn
at the 1M LTRO.
As a result, ECB outstanding facilities should fall to EUR 490bn (about EUR 465bn net of the
amount deposited at the ECB) and excess liquidity should decline to the EUR 45bn area.
KEY CHARTS
Excess liquidity on a rollercoaster Euribor futures change since January 13 ECB meeting
***. Triangles are the difference between the Euribor future with maturity are the indicated date and the 3M forward on the OIS curve, starting from the expirationdate of the future. For example, the Mar09 triangles is the difference between the Euribor future expiring in Mar09 and the 3M forward on the OIS curve starting onthe expiration date.
MONEY MARKET RATES RECENT CHANGES
Refi EONIA Euribor OIS Euribor / OIS
1M 3M 6M 12M 1M 3M 6M 12M 1M 3M 6M 12M
Last M 1.00 0.75 0.82 1.04 1.28 1.59 0.72 0.75 0.84 1.02 10 28 44 57
The first three rows of the above table show average values computed on monthly, quarterly and weekly horizons. Row five to eight display the bp rate changes vs.the values recorded 1 week, month, quarter and year ago.
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 17 See last pages for disclaimer.
Cheap and rich indicators are base on distribution percentiles. EEEE=Veryexpensive, E= Expensive, CCCC=Very cheap, C=cheap. Valuations arefrom the investor’s perspective.
The chart on the left shows the 20-trading-day Z-score levels for each EMU country with all the tenors considered. The y-axis variable is weighted by the outstanding. Moreover, rather than justlooking at the benchmark, several bonds are considered and weighted based on how close their maturity is vs. the reference tenor. In both charts, levels above (below) zero indicatecheapening (richening).
The chart on the left shows the 20-trading-day Z-score levels for each EMU country with all the tenors considered. The chart on the right plots the difference between current ASW levels andthe average for the last 20 days focusing on the tenor displaying the largest change. In both graphs the y-axis variable is weighted by the outstanding. Moreover, rather than just looking at thebenchmark, several bonds are considered and weighted based on how close their maturity is vs. the reference tenor. In both charts, levels above (below) zero indicate cheapening (richening).
-20
-10
0
10
20
Oct-10 Nov-10 Dec-10 Jan-11
0
4
8
12
16
ASW spread DSL 3.75 Jan42 Bund 3.25 Jul42
Asset swap spread
0
25
50
75
100
125
150
175
Oct-10 Nov-10 Dec-10 Jan-11
0
15
30
45
60
75
90
105ASW spread BTP 4.5 Feb18 BTP 5 Feb12
Asset swap spread
Source: Bloomberg, UniCredit Research (all tables and charts on this page)
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 20 See last pages for disclaimer.
EGB spread monitor: yield spreads vs. Germany (bp)Country Bond 10Y yield Spread vs. DE 1W ch. (bp) 1M ch. (bp) All-time high All-time low
■ According to the flash estimate, eurozone inflation in January accelerated to 2.4% yoy, the
highest level since October 2008. It is slightly higher than we had expected, however, we
wouldn’t rule out a 0.1pp downward revision when the final reading will be published at the
end of the month.
■ The reading would be consistent with a 2.3% reading in the ex-tobacco index.
■ No details are yet available, but we think that the upward pressure on the yearly rate was
driven mostly by food. Energy inflation probably did not record a meaningful acceleration,
due to a favorable base effect – energy prices rose by a strong 2.1% mom in January
2010. Core inflation – ex food, energy, alcohol and tobacco – should have remained at
1.1%, but with upside risks due mainly to hikes in administered prices.
■ Today, Italy released its preliminary CPI numbers for January. The figures where a tad
higher than expected, and we have revised our FOI projections accordingly.
■ The most recent spike in oil prices forced us to revise up by 0.1pp our eurozone projection
for 2011, and increases the probability that 2.4% will not be the inflation peak for this year.
At the time of writing, February looks a very close call, with headline inflation hovering
between 2.4% and 2.5% yoy.
■ Barring a further strong increase in oil prices, eurozone inflation should fall back in March,
due to a favorable base effect on energy.
US INFLATION-LINKED MARKET
0.0
0.5
1.0
1.5
2.0
2.5
3.0
BE 30Y BE 10Y BE 5Y 5Y5Y FFWD Inflation
L-T 1Y 6M Last
EU INFLATION-LINKED MARKET
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
BE 30Y BE 10Y BE 5Y 5Y5Y FFWD Inflation
L-T 1Y 6M Last
REAL YIELD CURVE (%)
BT
P2.5
5S
ep4
1
BT
P2.3
5S
ep35
BT
P2.6
Sep
23
BT
P2.1
Se
p21
BT
P2.3
5S
ep19
BT
P2.1
Sep17
BT
P2.1
Sep16
BT
P2.1
5S
ep
14
BT
P1.8
5S
ep12
OA
T€i1
.8Jul4
0
OA
T€
i3.1
5Jul3
2
OA
T€i1
,1Jul2
2
OA
T€i2
.25
Ju
l20
OA
T€
i1.6
Ju
l15
OA
T€i3
Jul1
2
Bu
nd
1.7
5A
pr2
0
Bun
d1.5
Ap
r16
Bu
nd
2.2
5A
pr1
3
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Mar-10 Feb-15 Feb-20 Feb-25 Feb-30 Feb-35 Feb-40
Real Swap rate
BREAKEVEN CURVE (BP)
BT
P2
.1S
ep
21
BT
P2
.35
Se
p1
9
BT
P2
.1S
ep
17
BT
P2
.1S
ep
16
BT
P2
.15
Sep
14
BT
P1
.85
Se
p1
2
BT
P2
.6S
ep2
3
BT
P2
.35
Se
p3
5
BT
P2
.55
Se
p41
OA
T€
i3Ju
l12
OA
T€i1
.6Ju
l15
OA
T€i2
.25
Jul2
0
OA
T€
i1,1
Ju
l22
OA
T€
i3.1
5Ju
l32
OA
T€
i1.8
Jul4
0
Bu
nd
2.2
5A
pr1
3
Bu
nd
1.5
Apr1
6
Bu
nd
1.7
5A
pr2
0
gg
b2
.9Ju
l25
gg
b2
.3Ju
l30
100
125
150
175
200
225
250
275
Mar-10 Mar-15 Mar-20 Mar-25 Mar-30 Feb-35 Feb-40
Swap Inflation
Source: Bloomberg, UniCredit Research
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 22 See last pages for disclaimer.
10Y REAL YIELDS – EU, JP, UK, US (%)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
US UK EU
10Y BE – EU, UK, US (BP)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
US UK EU
EUROZONE ILBS AT A GLANCE
Real Yield BreakEven
Current 1w ch. 1m ch. 3m ch. Current 1w ch. 1m ch. 3m ch.
BTP 1.85 Sep12 0.16 -15 -38.5 -20 210 -10 1 23
BTP 2.15 Sep14 1.44 -24 -21 23 175 -2 11 19
BTP 2.1 Sep16 1.98 -24 - - 165 -5 - -
BTP 2.1 Sep17 2.17 -19 -17 27 177 -7 1 23
BTP 2.35 Sep19 2.45 -19 -19 26 182 -4 4 22
BTP 2.1 Sep21 2.66 -19 -14 31 181 -2 2 18
BTP 2.6 Sep23 2.78 -20 -21 32 197 2 10 11
BTP 2.35 Sep35 2.72 -15 -19 38 255 0 10 5
BTP 2.55 Sep41 2.96 -16 -20 30 239 2 12 15
OAT€i 3 Jul12 -0.98 -3 23 -14 214 4 23 31
OAT€i 1.6 Jul15 0.48 -8 16 30 189 4 22 35
OAT€i 2.25 Jul20 1.37 1 11 47 195 2 13 27
OAT€i 1,1 Jul22 1.55 1 7 47 204 5 18 26
OAT€i 3.15 Jul32 1.72 9 4 54 232 -1 12 20
OAT€i 1.8 Jul40 1.70 11 5 53 235 -3 11 22
Bund 2.25 Apr13 -0.22 0 29 6 157 1 21 33
Bund 1.5 Apr16 0.56 -4 25 39 181 5 16 36
Bund 1.75 Apr20 1.13 3 15 47 197 4 14 34
OATi 1.6 Jul11 -2.32 -26 -64 -141 325 27 92 142
OATi 2.5 Jul13 -0.44 -13 16 -13 202 9 29 55
OATi 0.45 Jul16 0.59 -5 - -! 209 2 - -
OATi 1 Jul17 0.83 -2 17 39 210 1 8 34
US 5Y -0.18 15 -15 41 196 11 23 42
US 10Y 1.22 15 19 78 233 8 5 22
UK5Y 0.10 10 -5 35 283 6 31 53
UK10Y 0.77 7 1 31 325 4 16 40
Source: Bloomberg, UniCredit Research
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 23 See last pages for disclaimer.
Supply Corner
Another quiet week for supply, with risks of surprises
Weekly recap
Chiara Cremonesi(UniCredit Bank London)+44 207 826 [email protected]
It has been a quiet week in the primary market, with only EUR 13.65bn issued and no
surprises in terms of new benchmarks via syndication. Market sentiment remained positive on
periphery, with the Portuguese T-bill and the Spanish bond auctions both well received. This
further reinforced the prevailing optimism.
Austria Austria re-opening the RAGB Feb17 and Mar37 was well received, as expected.
Belgium T-bill auction Belgium attracted decent demand at the T-bill auction, selling EUR 3.7bn of 105-day and
161-day T-bills, the entire amount announced, and registering decent bid-to-covers (1.88x
and 1.93x, respectively). However, Belgium registered a rise in funding cost at both
maturities.
Portugal T-bill auction On Wednesday, Portugal sold EUR 455mn of BT Jul11 and EUR 800mn of BT Jan12, out
of an announced range of EUR 1.0-1.255bn. Demand was good. As expected, Portugal
registered a decrease in the cost of funding (70bp at the 6M and 32bp at the 12M): the 6M
was sold at 2.98% vs. 3.68%, while the 12M was sold at 3.71% vs. 4.029% at the last auction.
The auction went well, especially when considering that this was the first T-bill auction since
November when Portugal re-opened two lines. Moreover, the amount issued was higher than
the average at the recent Portuguese bill auctions.
However, despite the decrease in funding costs, yields were very high.
Spain bond auction… Yesterday, Spain sold EUR 1.9bn of Bono Oct13 and EUR 1.6bn of Obl Jan16, overall EUR
3.5bn, in the middle of the announced range (EUR 3/4bn). The auction was decently
received, with Spain registering a sharp drop in cost of funding (45bp at the 3Y and 50bp at
the 5Y). The sharp drop in the cost of funding was mostly due to the rally of Spanish bonds
over the last week.
With this auction, the Bono Oct13, the 3Y benchmark, has reached its outstanding target. As
indicated in the funding plan, Spain should issue a new 3Y benchmark in the next few
months.
…and France France issued EUR 8.5bn of 10 & 15Y OAT, attracting good demand.
Next week's preview
Another very quiet week in the EMUprimary market…nevertheless,beware of surprises!
Next week should be even quieter than this week in the primary market, with only EUR
6/7bn of supply scheduled, coming only from core countries. With no scheduled bond
supply from peripheral countries, we regard it as likely that some countries might announce
syndicated deals. We see Finland, Portugal and Spain as three possible candidates to issue
new benchmarks. As mentioned last week, we expect Finland to issue a new 10Y, Spain a
new 15Yand Portugal a new 10Y.
Slovakia Slovakia will re-open SLOVGB 4.35% Oct25, which was issued in October last year.
Trading at SW+114bp, the bond trades in line with the BTP Mar25 and a few bp cheaper
than the BT Mar26.The Netherlands On Tuesday, the Netherlands will re-open DSL 3.75% Jan42 by EUR 1/2bn. The DSL
Jan42 looks interesting vs. DBR Jul42. Indeed, at the long and extra long end of the curve,
the Netherlands trade in line with Germany (see DSL Jan28 and DSL Jan37), with the only
exception of the DSL Jan42, which trades almost 8bp cheaper in ASW than DBR Jul42, with
a slightly shorter maturity.Germany Germany will sell EUR 5bn of Obl Feb16. This will be the first re-opening of this bond, after
having been issued in January. At issuance, this bond did not attract stellar demand (1.3x
bid-to-cover). Since then, the 5Y benchmark has performed poorly, in line with the German
5Y area, with its yield climbing from below 2% to 2.40%, the highest level since August 2009.
The 5Y area on the German curve also looks attractive vs. the 2Y and the 10Y, as it has
sharply cheapened since September 2010. The 2/5/10Y barbell on the German curve
currently trades in the 10bp area, the cheap historical range. Given the relatively attractive
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 24 See last pages for disclaimer.
level of the bond, demand should be healthy. However, the current optimistic market mood,
spurring the return of risk appetite, as well as the good growth outlook for the German
economy could be two elements weighing on investor demand for German paper.The T-bill market: Greece and Italy will be the active players in the T-Bill market next week.Greece… Greece will sell EUR 300mn of 26W T-bills. At the last auction in January, Greece sold
EUR 1.5bn of 26W T-bills at 4.9%, registering a 3.4x cover ratio. Currently, the 6M is trading
in the 5.3% area, although with extremely large bid/ask spreads. We anticipate a good result
at the T-bill auction, in line with the trend at the Greek T-bill auctions.…and Italy We expect Italy to issue EUR 7.7bn of 12M BOT, in line with the amount expiring. Given
the rather comfortable cash position of Italy, we do not expect it to issue a 3M BOT. At the
last auction, the 12M BOT was sold at 2.067%, or EONIA +126bp. Following the rise in
money market rates and the good performance of Italian paper, the 12M BOT area now
trades at 1.75%, or EONIA +60bp.Italian exchange auction Italy announced that it will hold an exchange auction next week, buying back BTPs and
CCTs expiring in 2012 and 2013 and issuing BTPs expiring between 2018 and 2020. We
expect Italy to hold exchange auctions for debt expiring in 2012 rather regularly this year, as
its redemption profile shows a peak in 2012, with bond redemptions amounting to EUR
185bn.
Spain announced that it will issue SPGB Oct20 and SPGB Mar37 on 17 February and that it
will issue a new 5Y benchmark on 3 March. We think Spain will announce a syndicated deal
soon, possibly a new 15Y.A quick glance at the US Treasury In the US, the Treasury will sell USD 72bn of 3Y, 10Y & 30Y, the same amount sold last
Redemptions are inserted in the indicated weeks as if they were paid three days in advance with respect to the actual date at which the bond is redeemed. This isdone to allow for the exact matching of redemption flows with the auction settlement date (T+3). Source: ministries of finance, UniCredit Research
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 25 See last pages for disclaimer.
Supply recap
YTD SUPPLY BY MATURITY: 2010 & 2011 YTD SUPPLY BY COUNTRY: 2010 & 2011
35
34
48
6
11
7 6
24
12
3
7
4
31
36
0
10
20
30
40
50
60
3y 5y 10y 15y 30y + IL Floater
EU
Rbn
2010 2011YTD Supply 2010: €148 bn 2011 : €116 bn
4
32
30
7
38
1 2 1
13
3
6
1 2
13
1
12
5
2
20
2
6
0 0
31
0
34
0
10
20
30
40
50
AT BE FI FR GE GR IE IT NL PT SL SK SP
EU
Rb
n
2010 2011
Source: Bloomberg, UniCredit Research
PROGRESS OF FUNDING BY MATURITY & BY COUNTRY
Country AT BE FI FR GE GR IE IT NL PT SL SK SP TOT
Portugal gross bond supply for 2011 has been lowered to EUR 18bn, as we expect Portugal to cover at least EUR 2bnof funding needs via private placements. Source: Bloomberg, UniCredit Research
PROGRESS OF SUPPLY BY MATURITY (%) PROGRESS OF SUPPLY BY COUNTRIES (%)
€4
bn
€7b
n
€3
bn
€12b
n
€36
bn
€2
4b
n
€3
1b
n
€5
0b
n
€3
3b
n
€1
86
bn
€1
79
bn
€1
86
bn
€4
8b
n
€3
7b
n
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
3y 5y 10y 15y 30y + IL Floater
YTD Still to do
€0b
n€6
bn
€1
bn
€2
bn
€31
bn
€34
bn
€1
3b
n
€2b
n
€6
bn
€2
0b
n
€3
bn
€6b
n
€1
7b
n
€2
bn
€1
0b
n
€15
3b
n
€19
2b
n
€78
bn
€1
1b
n
€4
4b
n
€1
77
bn
€31
bn
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
SL AT FR IT SP FI NL GE BE PT SK
YTD Still to do
Source: Bloomberg, UniCredit Research (all tables and charts in this and the previous page)
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 26 See last pages for disclaimer.
Eurozone Debt Structure
DEBT MATURING IN THE NEXT 12 M (AS % OF TOT DEBT)
28 46 396
149 203
23 9 629 1
5
0
54
89 4194
85138
43 17 8
8
0
4
9
0%
5%
10%
15%
20%
25%
30%
35%
NL SP SK FR GE IT BE PT FI GR SL IE AT
M/L MM
Numbers denote the amount in EUR bn
S&P RATING VS. SWAP SPREAD
SKSLAT
FI
FRNL
BE
SP
PT
GE
IT
IE
GR
BB
B-
BB
B
BB
B+A-A
A+
AA
-
AA
AA
+
AA
A
BB
+
y = 67.98x - 99.571
R2
= 0.8544
-100
0
100
200
300
400
500
600
700
800
1 3 5 7 9 11
The chart takes into account the rating & the outlook
(*) Figures include over 20pp in banking sector related costs Source: Bloomberg, EC, UniCredit Research (all tables and charts in this page)
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 27 See last pages for disclaimer.
Eurozone Money Market Monitor
STOCK OF MONEY MARKET INSTRUMENTS (CURRENT, AT 31ST DECEMBER 2009, 2010 & 2011 (ESTIMATES)) & FUTURE
REDEMPTIONS (1 & 3M)
Outstanding Net Change Redemptions
Dec-09 Dec-10 Dec-11 (e) Current (current/end 2010) (end 2011 (e) /end 2010) Next 1M Next 3M
AT 6 4 4 9 5 0 2 6
BE 38 40 40 43 3 0 6 19
FI 12 11 9 8 -3 -2 0 1
FR 214 200 199 194 -6 -1 45 106
GE 104 87 81 85 -2 -6 11 33
GR 8 9 10 8 -1 1 0 5
IE 8 6 7 4 -2 1 1 4
IT 140 130 130 138 8 0 17 52
NL 60 67 67 54 -13 0 8 33
PT 17 18 18 17 -1 0 4 7
SP 85 88 88 89 1 0 8 25
Total 693 660 653 650 -10 -7 103 292
Source: Ministry of Finance of different eurozone countries, Bloomberg, UniCredit Research
EUROZONE MONEY MARKET YIELDS1
3M & 6M YIELDS AND SPREAD VS. EONIA 3M & 6M YIELDS IN EACH COUNTRY
3MSpread vs.Eonia (bp)
6MSpread vs.Eonia (bp)
AT 0.75 -6.7 0.99 5.1
BE 0.86 4.0 0.97 3.3
FI 0.63 -18.7 0.69 -24.9
FR 0.62 -20.2 0.76 -18.3
GE 0.58 -23.9 0.68 -26.2
GR 4.84 401.9 5.22 427.7
IE 2.63 181.7 - -
IT 0.93 10.9 1.21 27.5
NL 0.65 -16.5 0.73 -21.1
PT - - 2.68 173.8
SP 1.05 23.0 1.60 66.4
EONIA 0.818 0.938
EURIBOR 1.088 1.341
0.7
5
0.6
2
0.5
8
4.8
4
2.6
3
0.9
3
0.6
5
0.0
0
1.0
5
0.9
9
0.9
7
0.6
9
0.7
6
0.6
8
5.2
2
0.0
0
1.2
1
0.7
3
2.6
8
1.6
0
0.6
3
0.8
6
0.00
1.00
2.00
3.00
4.00
5.00
6.00
AT
BE FI
FR
GE
GR IE IT NL
PT
SP
3M 6M
Source: Bloomberg, UniCredit Research
MONEY MARKET REDEMPTIONS
…IN THE NEXT MONTH …AND IN THE NEXT 3 MONTHS
0
20
40
60
80
100
120
IT GR PT BE SP IE NL AT FI FR DE EU
Eu
rb
n
0
50
100
150
200
250
300
350
IT GR PT BE SP IE NL AT FI FR DE EU
Eu
rb
n
Source: Bloomberg, UniCredit Research (all tables and charts in this page)
Back to front page
1We computed the yield as a weighted average of the yields at each of the maturity considered (3&6M). We used the outstanding amounts of each T-bill as weighs.
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 28 See last pages for disclaimer.
FX Strategizer
Euro bulls impressed but not banishedArmin Mekelburg(UniCredit Bank)+49 89 [email protected]
Update: February 04, 2011, 09.30 CET Source: Bloomberg, UniCredit Research (all charts in this page)
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 36 See last pages for disclaimer.
FX Monitor: The Betas G10 Parade
We define the FX beta as the beta resulting from the following regression:
y(t) = α + β*x(t)+ε
where y(t) is the daily percentage change in an exchange rate and x(t) is the daily percentage change in a synthetic index. The regression is performed over a 10D
horizon and the coefficients in the table represent the value of the Beta over the last 10 days. Beta measures the reaction of the dependent variables (y(t)) to a
marginal movement in the independent variable (x(t)). In this monitor, the dependent variables are all the G10 crosses, while the independent variables are the USD
TWI, the EUR TWI, the US stocks (as proxied by the S&P 500 index) and oil prices. As for the stock-market betas, we can identify high beta exchange rates (with |β|
>1) and low beta exchange rate (with |β|<1), depending on whether they tend to overreact or underreact to changes of the independent variable. More precisely and
in line with the betas in the standard CAPM theory, a beta coefficient>1 indicates that a variable return moves in the same direction of the reference index with a
multiplying effect, while a beta coefficient <-1 means that a variable return moves in the opposite direction of the reference index with still a multiplying effect (we call
them "aggressive" pairs). On the other hand, a beta coefficient below 1 in absolute value indicates a variable return may move in the same or opposite direction of
the reference index, but underperforming the latter (we thus can call them "defensive pairs"). Taxonomy of possible outcome is reported in the table below:
TAXONOMY OF BETA OUTCOMES
Sign Type Description
>1 Aggressive Pair (same direction of the X variable) Changes of variable Y tend to outperform changes in variable X (in the same direction)
Defensive Pair (same direction of the X variable) Changes of variable Y tend to under perform changes in variable X (in the same direction)
Defensive Pair (opposite direction of the X variable)Changes of variable Y tend to under perform changes in variable X (in the oppositedirection)
Aggressive Pair (opposite direction of the X variable) Changes of variable Y tend to outperform changes in variable X (in the opposite direction)
For each of the independent variables, we calculate the beta coefficients with all the G10 crosses and each of the following tables picks up the five highest and five
lowest FX betas.
BETA COEFFICIENTS WITH USD TWI BETA COEFFICIENTS WITH EUR TWI
1.63
1.03
-1.11-1.24
-1.41
0.680.73
-0.82 -0.96
0.61
-2
-1
0
1
2
USDSEK
USDN
OK
USDC
AD
USDC
HF
NO
KSEK
GBPU
SD
EURN
ZD
EURAU
D
EURJP
Y
EURU
SD
AGGRESSIVE BETA
AGGRESSIVE BETA 1.53 1.49
-0.80-0.82
-1.43
-0.78-0.68
0.981.19
1.39
-2
-1
0
1
2
EURJP
Y
EURAU
D
EURU
SD
EURN
ZD
EURG
BP
USDC
HF
USDN
OK
AUDC
HF
JPYC
HF
USDSEK
AGGRESSIVE BETA
AGGRESSIVE BETA
BETA COEFFICIENTS WITH US STOCKS BETA COEFFICIENTS WITH OIL PRICES
-0.32
-0.84
-0.38-0.46-0.45
0.470.530.61 0.41 0.39
-2
-1
0
1
2
EURJP
Y
EURU
SD
GBPJP
Y
GBPU
SD
AUDJP
Y
EURSEK
NO
KSEK
USDC
AD
USDN
OK
USDSEK
AGGRESSIVE BETA
AGGRESSIVE BETA
0.16 0.13 0.13
-0.10 -0.10 -0.17 -0.17 -0.19
0.160.17
-2
-1
0
1
2
GBPC
AD
JPYC
HF
GBPN
ZD
GBPC
HF
USDSEK
AUDJP
Y
USDJP
Y
EURG
BP
NZD
JPY
EURJP
Y
AGGRESSIVE BETA
AGGRESSIVE BETA
Source: Bloomberg, UniCredit Research for all charts and tables in this page
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 37 See last pages for disclaimer.
LOOKING BACK – 20 DAYS ROLLING CORRELATIONS OVER THE LAST MONTHS
GBP-USD & COPPER PRICES EUR-JPY & GOLD
-40%
-20%
0%
20%
40%
60%
80%
100%
Jun-10 Jul-10 Sep-10 Oct-10 Dec-10 Feb-11
20dd correlation Last 6M average
average +/- 1.5*st.dev.
20
dd
co
rre
lati
on
be
twe
en
GB
PU
SD
an
dc
op
pe
r
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Jun-10 Jul-10 Sep-10 Oct-10 Dec-10 Feb-11
20dd rolling correlation Last 6M average
average +/- 1.5*st.dev.20
dd
co
rre
lati
on
be
twe
en
EU
RJ
PY
an
dg
old
Source: Bloomberg, UniCredit Research
1We compute the rolling correlation over the last 20 trading days between the daily return of each G10 cross and each of the variables specified on the left. For the
FI variables, we considered the daily change of the spread of the variables in the two countries to which the cross refers to. More specifically, we considered thespread of the 1st generic money market future and the spread of the 10Y yields. For commodities, we considered the daily return. Finally, we used the daily returnon the Standard & Poor 500 as a proxy for the equity market performance and the Vix index as an indicator of volatility. The table displays the 3 crosses showing thehighest positive (on the left hand side) and the 3 highest negative (on the right hand side) correlations with the variables on the left. On the right hand side of each20dd correlation, we report the rolling correlation over the last 80 trading days.3
The tables report the 20dd rolling correlation between the daily return of each of the G10 crosses and the corresponding daily change in the spread between 1stgeneric money market future contracts (left table) and 10Y yields (right table) in the two countries the cross refers to. In each cell the correlation refers to the crossobtained by taking the currencies on the same row and the one on the same column. For example cell(2,2) refers to EUR-JPY. We highlight in grey the correlation ifits absolute value is greater than the mean+1.5*standard deviation over the all sample.
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 38 See last pages for disclaimer.
FX Monitor: The Over & Undervaluation G-10 ParadeG10 FX OVER/UNDERVALUATION TABLE
Key G10 exchange rates The other most over/undervalued crosses
The table shows the results of coefficient estimates for the regression: X(t) = a+b*t+e, in which t is a linear trend and X represents an exchange rate in the G-10universe. The regression is performed on a 6M horizon and on a sample of weekly data. The over/undervaluation coefficient is the percentage difference betweenthe traded value of the exchange rate considered and its “fair value” as implied by its linear trend. A positive (negative) number in the over/undervaluation coefficientmeans that the indicated exchanged rate is overvalued (undervalued) with respect to its last 6M trend. The table reports on the left side results for EUR-USD, GBP-USD, USD-JPY and USD-CHF and on the right hand side the other six most over/undervalued exchange rates in the G10 world.
EUR-USD: OVER/UNDERVALUATION OVER TIME GBP-USD: OVER/UNDERVALUATION OVER TIME
The left chart above shows the dynamics of the weekly over/undervaluation coefficient of EUR-USD since January 2008. At any point in time, a coefficient greaterthan 0 signals that EUR-USD is overvalued on that specific week with respect to its last 6M trend, while a coefficient below zero indicates that EUR-USD isundervalued with respect to its linear trend. The charts also display the average of the over/under valuation coefficient over the last 6 and 12 months. The secondchart shows the dynamics of the weekly over/undervaluation coefficient of another G10 cross selected among the most over/undervalued G10 crosses reported inthe two charts below.
THE TOP TEN MOST OVERVALUED G-10 CROSSES THE TOP TEN MOST UNDERVALUED G-10 CROSSES
The two charts above show the top ten most overvalued/undervalued currencies within the G-10 universe over the last week with respect to their last 6M trend.
Source: Bloomberg, UniCredit Research for all charts in this page
Back to front page
4 February 2011 Economics & FI/FX Research
Curves & Crosses
UniCredit Research page 39 See last pages for disclaimer.
G-10 Top Data Releases & EventsMACRO DATA
Date Time(CET)
Country Data/Events Period UniCreditForecast
Cons. Previous Marketimpact
07-Feb-11 00.50 JN FX Reserves Jan - - 1.1T *
07-Feb-11 01.30 AU Retail Sales (mom) Dec - 0.5% 0.3% *
07-Feb-11 06.00 JN Leading Diffusion Index Dec P - 101.4 100.6 **
07-Feb-11 10.00 NO Industrial Production (mom) Dec - 0.4% 0.9% **
07-Feb-11 12.00 GE Factory Orders (mom) Dec -2.5% -1.8% 5.2% ***
07-Feb-11 14.30 CA Building Permits Dec - - -11.2% *
07-Feb-11 15.30 EU ECB Bond Purchases Statistics Wkly - - - **
07-Feb-11 21.00 US Consumer Credit Dec - 2.4B 1.3B *
08-Feb-11 00.50 JN Trade Balance & Current Account – bop basis Dec - 789B/1.55T 260B/1.15T **
08-Feb-11 01.01 UK BRC Retail Sales & RICS House Price Balance Jan - - - *
Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness andaccuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. We reserve theright to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice.
This analysis is for information purposes only and (i) does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for anyfinancial, money market or investment instrument or any security, (ii) is neither intended as such an offer for sale or subscription of or solicitation of an offer to buy or subscribefor any financial, money market or investment instrument or any security nor (iii) as an advertisement thereof. The investment possibilities discussed in this report may not besuitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussedmay fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments.Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investmentinstrument or security under discussion are not explained in their entirety.
This information is given without any warranty on an "as is" basis and should not be regarded as a substitute for obtaining individual advice. Investors must make their owndetermination of the appropriateness of an investment in any instruments referred to herein based on the merits and risks involved, their own investment strategy and their legal,fiscal and financial position. As this document does not qualify as an investment recommendation or as a direct investment recommendation, neither this document nor any partof it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Investors are urged to contact theirbank's investment advisor for individual explanations and advice.
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Responsibility for the content of this publication lies with:
a) UniCredit Bank AG, Am Tucherpark 16, 80538 Munich, Germany, (also responsible for the distribution pursuant to §34b WpHG). The company belongs to UCI Group.Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany.
b) UniCredit Bank AG London Branch, Moor House, 120 London Wall, London EC2Y 5ET, United Kingdom.Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany and subject to limited regulation by the FinancialServices Authority (FSA), 25 The North Colonnade, Canary Wharf, London E14 5HS, United Kingdom. Details about the extent of our regulation by the Financial ServicesAuthority are available from us on request.
c) UniCredit Bank AG Milan Branch, Via Tommaso Grossi 10, 20121 Milan, Italy, duly authorized by the Bank of Italy to provide investment services.Regulatory authority: “Bank of Italy”, Via Nazionale 91, 00184 Roma, Italy and Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany.
d) UniCredit Bank AG Vienna Branch, Julius-Tandler-Platz 3, 1090 Vienna, AustriaRegulatory authority: Finanzmarktaufsichtsbehörde (FMA), Praterstrasse 23, 1020 Vienna, Austria and subject to limited regulation by the “BaFin“ – Bundesanstalt für Finanz-dienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany. Details about the extent of our regulation by the Bundesanstalt für Finanzdienstleistungsaufsicht are availablefrom us on request.
e) UniCredit Securities, Boulevard Ring Office Building, 17/1 Chistoprudni Boulevard, Moscow 101000, RussiaRegulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia
f) UniCredit Menkul Değerler A.Ş., Büyükdere Cad. No. 195, Büyükdere Plaza Kat. 5, 34394 Levent, Istanbul, Turkey Regulatory authority: Sermaye Piyasası Kurulu – Capital Markets Board of Turkey, Eskişehir Yolu 8.Km No:156, 06530 Ankara, Turkey
h) Zagrebačka banka, Paromlinska 2, HR-10000 Zagreb, Croatia Regulatory authority: Croatian Agency for Supervision of Financial Services, Miramarska 24B, 10000 Zagreb, Croatia
i) UniCredit Bank, Na Príkope 858/20, CZ-11121 Prague, Czech RepublicRegulatory authority: CNB Czech National Bank, Na Příkopě 28, 115 03 Praha 1, Czech Republic
j) Bank Pekao, ul. Grzybowska 53/57, PL-00-950 Warsaw, PolandRegulatory authority: Polish Financial Supervision Authority, Plac Powstańców Warszawy 1, 00-950 Warsaw, Poland
k) UniCredit Bank, Prechistenskaya emb. 9, RF-19034 Moscow, RussiaRegulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia
l) UniCredit Bank, Šancova 1/A, SK-813 33 Bratislava, SlovakiaRegulatory authority: National Bank of Slovakia, Stefanikovo nam. 10/19, 967 01 Kremnica, Slovakia
m) Yapi Kredi, Yapi Kredi Plaza D Blok, Levent, TR-80620 Istanbul, TurkeyRegulatory authority: Sermaye Piyasası Kurulu – Capital Markets Board of Turkey, Eskişehir Yolu 8.Km No:156, 06530 Ankara, Turkey
n) UniCredit Tiriac Bank, Ghetarilor Street 23-25, RO-014106 Bucharest 1,RomaniaRegulatory authority: CNVM, Romanian National Securities Commission, Foişorului street, no.2, sector 3, Bucharest, Romania
o) ATFBank, 100 Furmanov Str., KZ-050000 Almaty, KazakhstanAgency of the Republic of Kazakhstan on the state regulation and supervision of financial market and financial organisations, 050000, Almaty, 67 Aiteke Bi str., Kazakhstan
POTENTIAL CONFLICTS OF INTEREST
UniCredit Bank AG acts as a Specialist or Primary Dealer in government bonds issued by the Italian, Portuguese and Greek Treasury. Main tasks of the Specialist are toparticipate with continuity and efficiency to the governments' securities auctions, to contribute to the efficiency of the secondary market through market making activity andquoting requirements and to contribute to the management of public debt and to the debt issuance policy choices, also through advisory and research activities.
ANALYST DECLARATION
The author’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this study, neither directly nor indirectly.
ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST
To prevent or remedy conflicts of interest, UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch,UniCredit Securities, UniCredit Menkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank have established the organizational arrangements required from a legal and supervisory aspect, adherence to which is monitored by its compliance department. Conflicts of interestarising are managed by legal and physical and non-physical barriers (collectively referred to as “Chinese Walls”) designed to restrict the flow of information between onearea/department of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch, UniCredit Securities, UniCreditMenkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank and another. In particular, Investment Banking units, including corporate finance, capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physical boundariesfrom Markets Units, as well as the research department. In the case of equities execution by UniCredit Bank AG Milan Branch, other than as a matter of client facilitation or deltahedging of OTC and listed derivative positions, there is no proprietary trading. Disclosure of publicly available conflicts of interest and other material interests is made in theresearch. Analysts are supervised and managed on a day-to-day basis by line managers who do not have responsibility for Investment Banking activities, including corporatefinance activities, or other activities other than the sale of securities to clients.
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ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED
Notice to Austrian investorsThis document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities and neither this documentnor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.This document is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, inwhole or part, for any purpose.
Notice to Czech investorsThis report is intended for clients of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch, UniCreditSecurities, UniCredit Menkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank in the Czech Republic and may not be used or relied upon by any other person for any purpose.
Notice to Italian investorsThis document is not for distribution to retail clients as defined in article 26, paragraph 1(e) of Regulation n. 16190 approved by CONSOB on October 29, 2007. In the case of ashort note, we invite the investors to read the related company report that can be found on UniCredit Research website www.research.unicreditgroup.eu.
Notice to Japanese investorsThis document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this documentnor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.
Notice to Polish investorsThis document is intended solely for professional clients as defined in Art. 3 39b of the Trading in Financial Instruments Act of 29 July 2005.The publisher and distributor of therecommendation certifies that it has acted with due care and diligence in preparing the recommendation, however, assumes no liability for its completeness and accuracy.
Notice to Russian investorsAs far as we are aware, not all of the financial instruments referred to in this analysis have been registered under the federal law of the Russian Federation "On the SecuritiesMarket" dated 22 April 1996, as amended (the "Law"), and are not being offered, sold, delivered or advertised in the Russian Federation. This analysis is intended for qualifiedinvestors, as defined by the Law, and shall not be distributed or disseminated to a general public and to any person, who is not a qualified investor.
Notice to Turkish investorsInvestment information, comments and recommendations stated herein are not within the scope of investment advisory activities. Investment advisory services are provided inaccordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and theclients. Comments and recommendations stated herein rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not suityour financial status, risk and return preferences. For this reason, to make an investment decision by relying solely on the information stated here may not result in consequencesthat meet your expectations.
Notice to UK investorsThis communication is directed only at clients of UniCredit Bank AG, UniCredit Bank AG London Branch, UniCredit Bank AG Vienna Branch, UniCredit Bank AG Milan Branch,UniCredit Securities, UniCredit Menkul Değerler A.Ş., UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank, ATFBank in the Czech Republic who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies,unincorporated associations, etc.”) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully becommunicated (all such persons together being referred to as “relevant persons”). This communication must not be acted on or relied on by persons who are not relevantpersons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons.
Notice to U.S. investorsThis report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient of thisreport represents and agrees, by virtue of its acceptance thereof, that it is such a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understandsthe risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security orissuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative ofUniCredit Capital Markets, LLC (“UCI Capital Markets”).Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UCI Capital Markets.The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S.reporting and/or other requirements. Available information regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing andreporting standards as U.S. issuers.The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose.Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, asamended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certaininvestors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UCI Capital Markets is not registered or licensed to trade insecurities, commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction tojurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements.The information in this publication is based on carefully selected sources believed to be reliable, but UCI Capital Markets does not make any representation with respect to itscompleteness or accuracy. All opinions expressed herein reflect the author’s judgment at the original time of publication, without regard to the date on which you may receivesuch information, and are subject to change without notice.UCI Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publicationsreflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of futureperformance, and no representation or warranty, express or implied, is provided in relation to future performance.UCI Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b)act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities;and (e) act as paid consultant or advisor to any issuer.The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factorsthat could cause a company’s actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economicconditions that adversely affect the level of demand for the company’s products or services, changes in foreign exchange markets, changes in international and domesticfinancial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in theirentirety by this cautionary statement
This document may not be distributed in Canada or Australia.
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UniCredit Research*Thorsten Weinelt, CFAGlobal Head of Research & Chief Strategist+49 89 [email protected]
Herbert Stocker, Technical Analysis+49 89 378-14305, [email protected]
Publication Address
UniCredit ResearchCorporate & Investment BankingUniCredit Bank AG Milan BranchEconomics & FI/FX ResearchVia Tommaso Grossi, 10 - 20121 MilanTel +39 02 8862.2019 - Fax +39 02 8862.2585
BloombergUCGR
Internetwww.research.unicreditgroup.eu
* UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit CAIB Group (UniCredit CAIB), UniCredit Securities (UniCredit Securities),UniCredit Menkul Değerler A.Ş. (UniCredit Menkul), UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank and ATFBank.