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Astor-Ridge-Econ-Data-Jan-28-Feb1.pdf

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

This research was prepared by Mark Funsch. He is a consultant with Astor Ridge. A history of his marketing commentaries can be provided upon request in compliance with the European Commission’s Market Abuse Regulation. Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail. The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains recommendations, those recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results.

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Astor-Ridge-Rates-Events-Calendar-Jan-29-Feb-1.pdf
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Astor-Ridge-Supply-calendar-Jan-28-Feb-1.pdf
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BBG: Airbus Calls Brexit Process a Disgrace, Threatens to Leave U.K.

Today's BREXIT BARRAGE...

Apologies for the late arrival – business meeting this am…

BBG: No-Deal Brexit Risk Recedes as Calls Grow to Delay Divorce

BBG: We Might Have Found the Least-Hated Brexit Option

FT: Jeremy Corbyn’s popularity hurt by Brexit stance, poll finds

BBC: Brexit: May meets union leaders for talks

TEL: Labour plots to delay Brexit as Theresa May scrambles to save her deal with new bid to woo Tory MPs

TEL: Brexit latest news: Theresa May powerless to prevent delay if MPs back plan to extend Article 50, allies admit

TEL: Jacob Rees-Mogg urges Theresa May to shut down Parliament if MPs try to thwart Brexit

TEL: Remainers have sabotaged Mrs May’s hopes of a Brexit compromise

TEL: Is it time for us Leavers to call a truce with the Remainers?

Enjoy….

Mark

image009.jpg@01D28D1B.42BD95C0">

Mark Funsch

O: +44 (0) 203 - 143 - 4177

M: +44 (0) 789 - 996 - 4051

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

MICROCOSM: GILTS RV Update > Leaning Bearish...

Please send this to clients who you think are likely to trade with us on this… M

The mere fact that there’s still ample fodder for my Brexit Barrage of news related to the continuing saga suggests that we’re not out of the woods yet by any means.

That said, if you’ve been following recent developments, we can assume a handful of things right now:
- An extension of Article 50 beyond Mar 29^th is becoming more and more likely given recent amendments tabled, with some suggesting a Dec 19 end.
- Parliament is making progress in their efforts to ‘hijack’ the Brexit process from Theresa May and Co to avoid a no-deal scenario.
- Corbyn’s amendment to avoid a no-deal was construed as increasing the odds of a second amendment which was denied by his cabinet.
- Rees-Mogg’s more conciliatory tone of the last couple days has an air of ‘just give us SOMETHING’ (an end date on the Irish backstop for ex) so we can vote on May’s deal since an imperfect Brexit would be better than no-Brexit at all.
- Europe has 27 members who each have a voice in this mess and there are signs of discord among them which could put pressure on Ireland to soften their stance.

So, throw this in a blender and what’s the most likely scenario? A softer Brexit than the Eurosceptics wanted, some time between March and hopefully before the EU’s May elections with an outside chance of no Brexit at all. In other words, May’s deal with a couple clarifying tweaks.

What does this mean for the MPC and by extension, the gilts market? Well, a postponement of Article 50 would leave the UK economy in ‘limbo’ and could mean kicking the can for as long as they need. It also means that things aren’t likely to grind to a halt and from the MPC’s perspective, we won’t be in ‘Def-Con 5’ alert status. We’d read that as opening the door for a more hawkish stance from the MPC, rather than the ‘preparing for the worst’ position Carney has been suggesting. As of this morning’s open, the SONIA curve is pricing in a total of just 27 bps of rate hikes over the next 18 months. This is about 7bps higher than we had around Jan 9^th but still a rather dovish outlook for a country with record low unemployment and inflation levels still among the G-10s highest. In other words, if the Brexit scenario we highlighted above comes to fruition, the gilts/Sonia curves have some steepening to do.

Gilts have traded well since the start of October, due in part to Brexit-driven panic but the G-10 economic outlook has softened and equities have traded poorly. Trump’s shutdown and the agonizingly slow trade talks with China have the markets in suspended animation, however, technicals are showing signs that the bullish momentum in rates has bottomed and risk assets (like EGB peripherals) are performing better, despite the January deluge of new supply.

Here are a few charts:

Cable vs UKT 1F28s… Correlation between them has been solid since August but the gilts have lagged the bullish move in Cable. Only one of them can be right!

UKT 1F28s bottoming formation

3mo-10yr Gilts vs SONIA – Gilts a good deal flatter and richer than we were before things got ugly…

We advocated a UKT 1H26 into UKT 1F28s flattener into the last tap of the 28s. It worked like a charm, flattening from 21.5 to 18.8bps in a few day but we’ve since given back half that move and likely more to come if we’re right.

1y1y SONIA vs UKT 1H26-1Q27 with SONIA shifted +40days… Correlation solid as one would expect. We like this micro-steepener as 1Q27 still look rich on the curve.

I love this chart… Here’s the UKT 1H26-4Q27-1F28 fly vs 1F28 yields shifted +30days. We’ve been short the 4Q27s on this fly on and off since last summer but added most recently at about the +7.5-8.0bps level. We can see that after the Sep delivery of the gilts contract, the 4Q27s lost their grip on the sector and as we progressed into Nov, the 1F28s were the primary driver of this fly. What this chart tells us is those who are hoping for a couple more basis points in this fly are really hoping for the 1F28s to catch fire again, NOT the 4Q27s to cheapen into falling out of the G M9 basket. Given our more bearish bias here, we’re advocating TAKING PROFITS on this fly here.

I’ll call you to discuss…

Mark

image009.jpg@01D28D1B.42BD95C0">

Mark Funsch

O: +44 (0) 203 - 143 - 4177

M: +44 (0) 789 - 996 - 4051

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

BBG: U.K. Parliament Moves Closer to Stopping a No-Deal Brexit

Today's BREXITT BARRAGE...

BBG: Brexit Bulletin: Unintended Consequences

BBG: Brussels Edition: The Other Plan B

BBG: There Actually Is a Brexit Consensus Among U.K. Voters

BBG: EU Presses Ireland for No-Deal Brexit Border Plan, Source Says

BBG: How Brexit Could Spill Over Into EU Elections

FT: Europe can break the Brexit impasse (Bob Diamond)

FT: UK Brexit turmoil changes the tone of other EU opponents

BBC: Brexit: Delay is ‘most likely’ option, says former chancellor

BBC: Brexit: Back to the backstop

TEL: Brexit latest news: Labour ‘highly likely’ to back plan to delay EU withdrawal

TEL: Brexit latest news: Eurosceptics urged to ‘swallow their pride’ and back Theresa May’s deal in order to save Brexit

Enjoy!

Mark

image009.jpg@01D28D1B.42BD95C0">

Mark Funsch

O: +44 (0) 203 - 143 - 4177

M: +44 (0) 789 - 996 - 4051

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

BBG: Brexit Bulletin: A Step to a Second Referendum

Today's BREXIT BARRAGE... The plot thickens...

BBG: Labour Calls for Vote That Could Trigger Brexit Referendum Rerun

BBG: May’s Brexit Plan B a ‘Disappointment,’ German Minister Says

BBG: May’s Brexit Plan B Still Keeps Her Dependent on Opposition Votes

BBG: U.K. Struggles to Deliver Services as Brexit Bites, Report Says

BBG: Brexit Is Making It Hard to Buy British Companies

BBG: May Won’t Rule Out Brexit Delay as U.K. Parliament Takes Control

BBG: Brexit Forces Equity, Foreign-Exchange Markets to Leave London

FT: Brexiters feel the heat as prospect grows of delay to EU departure

FT: Michel Barnier rebuffs UK attempt to renegotiate backstop plan

BBC: Brexit: MPs put forward rival plans to May’s deal

BBC: Brexit: Should Theresa May stick with her plan?

BBC: Brexit: Why are MPs putting forward amendments?

TEL: Jeremy Corbyn backs MPs’ plan to force a second referendum

TEL: A second referendum would be a disaster for Britain, but it’s where we’re heading

TEL: Sorry Leavers, but the managerial Deep State that runs Britain has officially killed off Brexit

image009.jpg@01D28D1B.42BD95C0">

Mark Funsch

O: +44 (0) 203 - 143 - 4177

M: +44 (0) 789 - 996 - 4051

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

MICROCOSM: Spain's Tesoro Announces Syndicated Apr 30, 2029 Issue - RV Thoughts...

Let’s take a close look at SPGBs now that the 10yr has been announced.

TRADE IDEAS: We like owning SPGB 7/28s vs OATH9 and IKH9. We also like the SPGB 10/25-7/28 flattener. Please see below for supporting colour/data.

Here’s a note I posted in our chat last Thursday:
EUROZONE... SPGBs vs BTPS

Ø Spain just tapped their SPGB 1.5 4/27s this am. The SPGB 10/25-4/27 spread looks very steep to me as the SPGB 10/25s trade very rich on the curve.

Ø If we compare the BTPS 11/25s (current 7yr) vs BTPS 2.2 6/27s, about the same maturity gap, we get a spread of +28bps, currently the steepest it's been. That's versus +34.1bps in the SPGBs spread, a sizeable difference.

Ø In addition, the FRTR 11/25 vs FRTR 5/27s spread is just 23.7bps.

Which leads me to the BLEND...

Since JUNE last year, the 1-2-1 weighted blend of LONG SPGB 1.5 4/27 vs FRTR 1 5/27 and BTPS 2.2 6/27 has been in a -52 to -125bps range, driven largely by the SPGB-BTPS leg. We're currently -61.6bps on the rebound in BTPS.

If we change the weighting to balance it for the difference in the wings, the SPGBs actually look even cheaper, the 65% FRTR-SPGB vs 35% SPGB-BTPS weighting moving back to the middle of the 1yr range.

So, if you're bullish SPGBs here and think BTPS could wobble again, this is a nice way to express the trade.

Today:

With the announcement of the SPGB 10yr syndication, the market will be looking very closely at this relationship again. While we're happy to consider the richest vs cheapest issues within the 8-10yr sector, the reality of the situation is France, Spain and Italy can all be tough liquidity-wise so using the OATH9 and IKH9 contracts (or even their CTDs) as the France and Italy wings makes sense to us.

Here’s a chart of a simple 1-2-1 weighted blend (fly) of SPGBs 1.4 4/28s (more history than SPGB 7/28s) vs FRTR 2.75 10/27 and BTPS 4.75 9/28s going back to early 2018.
We can see Spain had a massive run between early May and late August, richening 120bps in this structure. Clearly, much of this was the widening of BTPS vs SPGBs but even the SPGB-FRTRs 10yr spread widened over that span from +44bps to +80bps.

Let’s shift gears a bit and use the SPGB 1.4 7/28s as the Spain bond (a touch cheaper, better liquidity, etc) and adjust the weighting to reflect the difference in the spreads. We now come up with a ratio of .60/1.00/.40 where there’s a bit more risk in the OATs leg. In theory, this new ratio is supposed to mitigate some of the spread risk so we’re not just in a lower beta SPGB-BTPS widener. As we can see below, this ratio is less volatile yet still cheap historically (although the SPGB 7/28s only go back to last June), even after the narrowing since Jan 2.

From a macro-perspective, check out the tables below of Spain, France and Italy sovereign issuance expected this year (data from Citi).

Here’s some more info, this time from DB:

What jumps off the page in these tables is not just the absolute size of Italy and France’s issuance needs relative to Spain’s (almost twice as much) but that France’s net need is 2.5 times larger than Italy’s and 3 times larger than Spain’s. Even with the coupon and redemption flows supporting Italy, taking their net issuance down to just 34bln, Italy is expected to issue 8bln more 15yr+ paper than Spain. France’s 15yr+ totals are much larger at 27.2bln.

Lastly, with growth in Europe showing signs of slowing, we must be cognizant of the economic forecasts of each of these countries. We can see below that, while there is some expectation of convergence between Spain and France by 2023 (Citi and others), Spain’s pace of growth is expected to outpace both France and Italy until then. This could have a bearing on their relative issuance needs and the performance of their sovereign bonds.

So, from a macro perspective, we will maintain a stance of buying SPGBs when they look cheap on structures like this one.

What if I want a more micro-bet on Spain than the blend above? Let’s look at a bit of history.

Here are the last few SPGB 10yr syndications:

Date Issue Size Spread to Swaps Current size

Jun 26, 2018 SPGB 1.4 7/28 Eur 7bln +55bps 21.6 bln

Jan 30, 2018 SPGB 1.4 4/28 Eur 10bln +46bps 21.0 bln
Jun 27, 2017 SPGB 1.45 10/27 Eur 8bln +70bps 22.3 bln

Jan 24, 2017 SPGB 1.50 4/27 Eur 9bln +77bps 18.5 bln

Jul 19, 2016 SPGB 1.3 10/26 Eur 6bln +95bps 22.6 bln

The current SPGB 1.4 7/28 spread to swaps is +60.5bps. We estimate a new SPGB 4/30/29 issue would likely come with a 1.45% coupon and a spread of +15bps vs the SPGB 1.4 7/28s. That would give it some ‘juice’ on the curve to attract demand and would likely give it an indicative spread of mid-swaps +65bps.

We like the SPGB 10/25 vs SPGB 7/28s (or the new issue depending upon spread-talk) flattener here, yield spread or MMS box. The spread has turned a bit, looks very steep and the 7yr point of the SPGB curve looks rich to us. Carry and roll on the flattener is a touch negative at about 0.5 bps per 3 mos. Given this is a tactical trade that should perform post-pricing, we’re not planning to hold the trade long enough for neg carry and roll to hurt us.

We’ll be in touch.

Thanks

Mark

image009.jpg@01D28D1B.42BD95C0">

Mark Funsch

O: +44 (0) 203 - 143 - 4177

M: +44 (0) 789 - 996 - 4051

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

BBG: May Is Said to Give Up on Cross-Party Talks to Fix Brexit

Today's BREXIT BARRAGE...

Still as befuddled as they were when this whole thing kicked off in earnest back in October… Here’s today’s cornucopia of consternation…

BBG: Brexit Bulletin: Let the Plotting Commence

BBG: EU is Split Over Delaying Brexit By as Much as a Year, Diplomats Say

BBG: How Parliament Can Seize Control of Brexit: A Step-by-Step Guide

FT: Theresa May on Brexit collision course with MPs

FT: How the Brexit options would affect the economy

FT: Economic confidence nosedives in UK boardrooms

FT: Post-Brexit settlement scheme ‘well on track’, UK insists

TEL: Exclusive: Theresa May mulls amending Good Friday Agreement to get her Brexit deal past MPs

TEL Brexit latest news: Theresa May set to seek changes to the Irish backstop as she signals end to cross-party talks

TEL These feeble plots won’t stop Brexit – but they are destroying public trust in our politicians

TEL: The 10 questions Remainers need to answer before stopping a no-deal

BBC: Brexit: May looks for way to break deadlock

That should keep you busy this am!

Enjoy

Mark

image009.jpg@01D28D1B.42BD95C0">

Mark Funsch

O: +44 (0) 203 - 143 - 4177

M: +44 (0) 789 - 996 - 4051

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

Astor Ridge Rates Market Data, Events and Supply Calendars for Week of Jan 21-25

Astor Ridge Data, Events and Supply Calendars for next week.

US holiday Monday and no Fed speakers could make for another week of Trump watch in the US.

ECB meeting broadly expected to be a non-event.

Brexit fiasco still dominates in the UK but with the Plan B vote pushed to Jan 29 it could be a quieter tone...

Supply is pretty light compared to the last two weeks. No US supply, EGBs limited to 2022-2025 sector in France and Germany and the UK taps the 1T37s, taking them to £19bln...

Please see attached.

Mark

image009.jpg@01D28D1B.42BD95C0">

Mark Funsch

O: +44 (0) 203 - 143 - 4177

M: +44 (0) 789 - 996 - 4051

Astor-Ridge-Econ-Data-Jan-21-25.pdf

UK: 14-16 Dowgate Hill, London UK EC4R 2SU

US: 245 Park Ave, 39^th Floor, NY, NY, 10167

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA): Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House: Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC: CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA): Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House: Registration Number OC401796

Astor-Ridge-Supply-calendar-Jan-21-25.pdf
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Astor-Ridge-Rates-Events-Calendar-Jan-21-25.pdf
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