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10 Apr 2013
Forex Flash: BoJ easing may be lifting demand for European debt - BTMU
FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that the unprecedented BoJ easing announced last week is expected to help support asset prices generally with the ADB report citing potential asset bubbles and the Thai Authorities citing evidence of capital inflows into the Thai Bond Market seeking yield.
He feels that judging the result of yesterday´s ESM debt auction, the impact of this aggressive easing may also be lifting demand for European debt. he writes, “The ESM sold EUR 8.0bn worth of 5-year debt – a record for a supranational organisation. The auction, priced at a yield of 0.956%, attracted EUR 14.0bn worth of bids from 200 separate entities primarily from the euro-zone and Asia.” Although he doesn’t know specifically what the take-up was from Japan, Asian investors bought 29% of the paper in contrast to the 5% take-up at the last 3-year auction in February and 16% of a 5-year auction in January.
He feels that the potential impact of the BOJ action is also evident in the periphery bond markets with the 10-year yield spread for Spain over Germany down 24bps to 343bps since the BOJ announcement last week. He sees that these favourable movements in periphery spreads have helped to lift the EUR/USD rate back above the 1.3000 level. Still, the fundamentals in the euro-zone remain dire with fiscal or political problems in Portugal, France and Italy. he writes, “The ECB is not far from signalling a rate cut and in these circumstances, the upside for EUR/USD remains quite limited. Our current three-month EUR/USD forecast remains 1.3000.”
He feels that judging the result of yesterday´s ESM debt auction, the impact of this aggressive easing may also be lifting demand for European debt. he writes, “The ESM sold EUR 8.0bn worth of 5-year debt – a record for a supranational organisation. The auction, priced at a yield of 0.956%, attracted EUR 14.0bn worth of bids from 200 separate entities primarily from the euro-zone and Asia.” Although he doesn’t know specifically what the take-up was from Japan, Asian investors bought 29% of the paper in contrast to the 5% take-up at the last 3-year auction in February and 16% of a 5-year auction in January.
He feels that the potential impact of the BOJ action is also evident in the periphery bond markets with the 10-year yield spread for Spain over Germany down 24bps to 343bps since the BOJ announcement last week. He sees that these favourable movements in periphery spreads have helped to lift the EUR/USD rate back above the 1.3000 level. Still, the fundamentals in the euro-zone remain dire with fiscal or political problems in Portugal, France and Italy. he writes, “The ECB is not far from signalling a rate cut and in these circumstances, the upside for EUR/USD remains quite limited. Our current three-month EUR/USD forecast remains 1.3000.”