Weekly Eurobonds_2010_02_01

Weekly Eurobonds

Our last week’s investment strategy for players on the Eurobonds market helped them to save previous gains. Nervousness still persists on the external market and we expect some processes to accelerate even further. We believe, earlier chosen approach of staying away from risks is comfortable for investors for this week as well. We recommend to hedge from risks for some time and switch into issues with relatively short duration. Because of limited choice of investment targets on the Eurobond market, our top picks remain low-liquid Rosbank-12, Cascade of Nizhne-Cherekskie HPPs-13, UAC-10 and issues of banking sector with call-options, such as Promsvyazbank issues, Bank of St. Petersburg, Tatfondbank-12 new issue etc. If our projections concerning further developments on the internal currency market and, as a consequence, on the ruble bond market prove to be correct, illiquid Eurobonds price growth will be warranted.

The tendencies of the previous week continue: VIX Index consolidated at a relatively high level (approx. 24). Credit swaps’ widening and CDS increase continue on almost all the markets, inflationary risks are on the sideline (Tbonds vs. TIPs spread, slightly smaller slope of yield curve – Tbond-10 vs. Tbond-2), and money remains cheap (LIBOR (1Y), EURIBOR (1Y) and other indicators of money market).

Thus, we retain our recommendation – to focus on transparent corporate credit risks.
The governing conditions for sovereign bond yield on the emerging as well as developed markets will be a bag of macro data in line with the schedule, outcomes of sovereign bond issues of some EU countries and Japan, possible follow-up comments on Bank of England and ECB meetings on Thursday concerning further plans and future stance on money policy.

Upcoming auctions:
Tuesday, Feb. 2. THE NETHERLANDS – estimated 6.5 bn euros new July 2020
Wednesday, Feb. 3. GERMANY – up to 6 bn euros 2.5 pct Feb. 2015
Thursday, Feb. 4. FRANCE – up to 8 bn euros 5.0 pct Oct. 2016, 4.75 pct and new 3.5 pct April 2020
SPAIN – up to 3 bn euros 2.3 pct April 2013, plus a possible 2 bn off-the-run 4.25 pct Jan. 2014.