EURi: Stronger despite Italian data revision and supply

Italy flag 8 Jun 2020
Euro inflation finished higher today despite fresh supply hitting the market and a downward revision to Italian data.

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  • Stronger despite Italian data revision and supply
  • Short OATei-53 breakeven - Barclays

    Stronger despite Italian data revision and supply
    Euro inflation finished higher today despite fresh supply hitting the market as well as a downward revision to Italian data.

    In latest supply, Italy tapped €1.5bn of the BTPei-33 at an average yield of 2.19% and bid to cover of 1.43. Traders reported seeing “two-way flows” and “few concessions” going into the auction. “It was ok,” summarised one dealer, “It was less squeezed than last time and the overbidding was in-line,” they felt.

    Elsewhere, the latest data prints saw no revision to German HICP and it was confirmed at 9.2%yoy. However, Italian HICP was revised slightly lower to 10.7%yoy from 10.9%.

    Interestingly, the front-end of the euro inflation curve still managed to perform today despite the downwardly revised Italian number and a sharp decline in oil with front Brent last $2.04 lower at $81.01. Still, gas futures finished the session higher with the front Dutch contract last up $2.02 at $50.56.

    Reflecting on the front-end gains, one trader suggested short-covering could be a factor, “The market seemed to build up shorts throughout January and there could still be some unwinds. In recent days there has been talk of a possible upward revision to tomorrow’s final euro HICP and that will be rattling some accounts despite today’s Italian revision. Also, the FOMC minutes later today are an incentive to close out any positions you are not feeling entirely committed to,” it was argued. 

    Last prices across the curve were EUR 1y HICP +5.5bps at 2.71%, 5y +1.75bp at 2.5025% and 10y +0.25bp at 2.46%.


    Short OATei-53 breakeven - Barclays
    In its latest weekly research published the end of last week Barclays recommends shorting OATei-53 breakeven, beta-weighted. In its summary the bank writes:

      ”We see value in shorting long-end breakevens. Within the relative value framework, the OATei-53 stands out as particularly rich. The main risk to short breakeven positions in the back end remains real money demand, especially if duration sells off further. That said, real yield sell-offs do not necessarily trigger prolonged support for breakevens in the back end. Nevertheless, we recommend shorting the OATe-i53 in breakeven with a 75% beta on the nominal leg (rather than a DV01 neutral position) for some protection against a duration sell-off.”