2019 :2007 OR 2017? Jean Fran ois Robin Natixis Global Head of - - PowerPoint PPT Presentation
2019 :2007 OR 2017? Jean Fran ois Robin Natixis Global Head of Market Research Corporate&Investment Banking jean-francois.robin@natixis.com CORPORATE & INVESTMENT BANKING Risk Perception Index Natixis 120 120 100 100 80 80 60
CORPORATE & INVESTMENT BANKING
Jean François Robin Natixis
Global Head of Market Research Corporate&Investment Banking
jean-francois.robin@natixis.com
2
20 40 60 80 100 120 20 40 60 80 100 120 97 99 01 03 05 07 09 11 13 15 17 19
Source : NATIXIS
20 40 60 80 100 120 20 40 60 80 100 120 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19
Source : NATIXIS
3
2018 2019 2020 2018 2019 2020 2018 2019 2020 United States 2,9 2,4 1,8 2,4 1,9 2,0
Latin-America* 1,4 2,1 2,3 7,0 5,0 4,2
Brazil 1,1 2,5 2,7 3,7 3,8 4,0
Mexico 2,0 1,5 1,5 4,8 3,5 3,2
Argentina
0,3 2,0 47,7 27,0 15,0
United Kingdom 1,4 1,4 1,6 2,5 2,1 2,3
Euro Zone** 1,8 1,2 1,3 1,8 1,4 1,4
Germany 1,5 0,7 1,3 1,9 1,8 1,9 1,3 1,0 0,9 France 1,5 1,8 1,4 2,1 1,2 1,4
Italy 0,8 0,2 1,0 1,2 1,1 0,9
Spain 2,5 2,1 1,9 1,7 1,2 1,7
Central Europe *** 4,3 3,1 3,3 1,9 1,8 2,6
0,0 Turkey 2,9 0,6 3,0 16,3 17,2 12,5
Russia 1,9 1,8 1,5 2,9 4,8 5,0 1,3 1,8 1,0 China 6,6 6,3 6,2 2,1 2,0 2,2
Japan 0,7 0,8 0,6 1,0 1,0 1,4
Asia excluding China and Japan**** 5,0 4,6 4,6 2,6 2,5 2,7
India 7,4 7,1 7,0 3,9 3,5 5,2
Korea 2,7 2,5 2,4 1,5 1,2 1,4
Developed economies 2,3 1,8 1,5 2,0 1,7 1,8
4,9 4,8 4,9 3,6 3,3 3,4
2,8 2,4 2,3 2,3 2,0 2,1
3,7 3,4 3,3
** Fiscal numbers reflect only current official projections *** Poland, Hungary, Czech Republic
Fiscal balance (% of GDP) GDP (YoY) Inflation (YoY)
4
2 4 6 8 10
2 4 6 8 10 98 00 02 04 06 08 10 12 14 16 18
World Emerging Countries Developed economies
Sources : Datastream, NATIXIS
5
2 4 6 8
2 4 6 8 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Real GDP (YoY %) Potential Growth
Sources : Datastream, NATIXIS
6
80 100 120 140 160 180 200 220 240 260 80 100 120 140 160 180 200 220 240 260 96 98 00 02 04 06 08 10 12 14 16 18
Real GDP Manufacturing production Sources: Datastream, NATIXIS
7
2 4 6 8 10 12 14
2 4 6 8 10 12 14 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Central bank intervention rate 10y interest rate gov (%) Nominal GDP (YoY in %)
Sources : Datastream, NATIXIS
8
5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Sources : Datastream, NATIXIS
9
2 4 6 8 10 12
2 4 6 8 10 12 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
CPI Core CPI*
Sources : Datastream, FMI, NATIXIS
(*) excl. energy & Food
OUTLOOK RATES 2019 10
2 4 6
2 4 6 97 99 01 03 05 07 09 11 13 15 17 19
United States Euro zone
Sources : Datastream, NATIXIS Forecasts
0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 07 09 11 13 15 17 19
Euro zone United States
Sources : Bloomberg, NATIXIS
Swap inflation maturity 5y
11
Real wages (CPI) Nominal wages Real wage income (CPI) Sources: Cabinet Office (Japan), Datastream
12
Self financing rate (L) Net profits ( % GDP, R) Sources: Datastream, MOF
13 OUTLOOK RATES 2019
14
60 100 140 180 220 260 300 340 380 60 100 140 180 220 260 300 340 380 96 98 00 02 04 06 08 10 12 14 16 18
Germany Italy France United Kingdom Portugal Greece Spain Sources : EUROSTAT, NATIXIS
15
Germany France Spain Greece Austria Portugal Ireland Netherlands Finland Italy Sources: Statistisches Bundesamt, INSEE, BDE, ISTAT, Calculation NATIXIS
16
Unemployment rate (U6, L) Unemployment rate (L) Proportion of industry with difficulties of recruitment * (L) Capacity Utilization Rate (R) Sources : Datastream, EUROSTAT, NATIXIS
(*) standardised data 1995-2017
17
80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 96 98 00 02 04 06 08 10 12 14 16 18
Exports: Germany Exports: France Exports: Italy Exports : Portugal World trade Exports: Greece Exports: United Kingdom Exports: Spain Exports: Austria Sources : INSEE, ISTAT, Bundesbank
18 OUTLOOK RATES 2019
19
40 45 50 55 60 4 6 8 10 12 14 16 06 07 08 09 10 11 12 13 14 15 16 17 18 19
GDP (LHS) PMI (RHS)
Sources : Datastream, NATIXIS
20
10 20 30 40 50 60 70
10 20 30 40 50 60 70 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Machines and equiments ICT equipements Sources : Datastream, NBS
21
3 6 9 12 15 18 21 24 27 3 6 9 12 15 18 21 24 27 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Retail sales (nominal) Retail sales (real, deflated by the prices)
Sources : Datastream, NBS
22 OUTLOOK RATES 2019
23
Unemployment rate (U6, L) Unemployment rate (L) Participation Rate (R) Capacity Utilization Rate (R) Sources : Datastream, BLS, FED, NATIXIS
24
80 100 120 140 160 180 200 220 80 100 120 140 160 180 200 220 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Residential property prices (composite -10) Residential property prices (composite -20) Commercial prices
Source : Bloomberg
25
2 4 6 8 10 12 2 4 6 8 10 12 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Personal savings as a percentage of disposable personal income (as % of DPI) Default rate on credit cards Default rate on car loans Default rate on mortgages loans
Sources : Datastream, BEA, NATIXIS
Fiscal stimulus
OUTLOOK RATES 2019 26
OUTLOOK RATES 2019 27
28 OUTLOOK RATES 2019
29
Exports as % of GDP (%, 2017)
30
5,9 6,2 6,5 6,8 7,1 7,4 7,7 8,0 8,3 5,9 6,2 6,5 6,8 7,1 7,4 7,7 8,0 8,3 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
RMB/$ Source: Datastream
31 OUTLOOK RATES 2019
32
2 4 6 8
10 20 30 40 96 98 00 02 04 06 08 10 12 14 16 18
Housing investment (L) Productive investment (L) Household consumption (R) Real GDP (R)
Source : ONS
33
Sources: BoE, EU withdrawal scenarios and monetary and financial stability
OUTLOOK RATES 2019
34
Sources : Smarkets, Natixis
Revoke Article 50 No-deal
tight calendar
extension
to take other the whole negocation process
Try to renegociate with EU Try to renegociate with EU New referendum Try to renegociate with EU Plan B New elections
need 2/3 MPS
Exit Remain
March 29 : current deadline to get an agreement July 2nd : Inaugural plenary session of the newly-elected € Parliament March : start of € campaign April-May : Lead candidates debates 18 April : last € parliament session 23-26 May : European elections 20-21 June : € council summit The European calendar
High Probability Low Where to ?
27% 23% 27% 7%
End February : time limit set by the House -> not binding for the govt
OUTLOOK RATES 2019
35
2 4 6
2 4 6 96 98 00 02 04 06 08 10 12 14 16 18
United States Japan United Kingdom Euro zone Sources : Datastream, BEA, ECB, ONS, IMF, NATIXIS
36
70 80 90 100 110 120 130 140 150 70 80 90 100 110 120 130 140 150 96 98 00 02 04 06 08 10 12 14 16 18
United States Euro zone United Kingdom Japan Source : Datastream
37 OUTLOOK RATES 2019
CONTAGION TO STRIKE BACK IN 2019 ? DECEMBER 2018 38 100 200 300 400 500 600 100 200 300 400 500 600 07 09 11 13 15 17 19
OAT - BUND BONO - BUND BTP - BUND
Sources : Datastream, NATIXIS
39
90 95 100 105 110 115 120 125 130 135 140 90 95 100 105 110 115 120 125 130 135 140 96 98 00 02 04 06 08 10 12 14 16 18
Germany Spain Italy Portugal Greece Austria United Kingdom France Sources : Statistisches Bundesamt, INSEE, BDE, ISTAT
40
Sources: Natixis Economic research (Camille Neuvile), EC, Istat
January 31 Q4 2018 GDP first estimate February 15 Fitch review BBB / NEG March 15 Moody’s Review Baa3 / STA April Stability & Growth Pacts presented April 26 S&P review BBB / NEG May 1 Q1 2019 GDP first estimate May 24-26 European elections
OUTLOOK RATES 2019
Source : Natixis
20 40 Jan-15 Aug-15 Mar-16 Oct-16 May-17 Dec-17 Jul-18
Italy Portugal Ireland Spain France Germany
EZ banks - Cumulated flows on sovereign since Jan. 2015 (Bn)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 1 / 0 7 0 1 / 0 9 0 1 / 1 1 0 1 / 1 3 0 1 / 1 5 0 1 / 1 7
Residents vs Non-residents holdings of marketable debt (% of total)
Banca d’Italia : 19,5% Non-residents : 33,8% Other residents : 46,8%
OUTLOOK RATES 2019 41
Source : Banca d’Italia
Net purchases Reinvest? Gross purchases Supply* Net supply Net supply - net PSPP 2017 112 1 112 263 50
2018 38 21 59 240 59 21 2019 36 36 260 65 65 Source : Natixis
*56Bn net supply in 2019
Purchases of BTPs by the Eurosystem and adjusted net supply (Bn)
Source : Natixis
demand ratios in Europe with the end of net assets purchases.
issues vs 35% in 2018.
while Spain will cut its program by 7Bn. Germany & France up as well.
program
OUTLOOK RATES 2019 42
2018 & 2019 sovereign issuance program vs PSPP purchases (Bn) Net APP 2018 2019 2018 2018 2019 2018 2019 delta 2018 2019 Germany 145 156 55 27 40 82 40
56% 26% France 225 230 44 19 35 63 35
28% 15% Italy 238 250 38 21 38 59 38
25% 15% Spain 132 125 30 9 29 39 29
29% 23% Portugal 16 13 5 2 3 7 3
46% 27% Ireland 17 16 5 2 3 7 3
39% 18% Belgium 34 28 8 4 4 12 4
34% 14% Austria 18 19 6 2 5 8 5
46% 28% Netherlands 22,4 21 12 7 6 19 6
84% 30% Finland 11 9 4 1 1 5 1
48% 14% Slovakia 3 4,3 2 1 1 2 1
83% 12% Total 861 871 209 95 166 303 166
35% 19%
Source : Natixis
Gross supply PSPP reinvestments Gross purchases Gross PSPP / Gross supply Share of issuance program completed as of Fed. 2019 0% 10% 20% 30% 40% 50% 60% AUT FIN EFSF/ESM POR IRL SPA ITA FRA BEL GER NL SK GRE 2018 2019
TLTRO II 1 TLTRO II 2 TLTRO II 3 TLTRO II 4 Launching date Jun-16 Sep-16 Dec-16 Mar-17 Maturity Jun-20 Sep-20 Dec-20 Mar-21 First repay. date Jun-18 Sep-18 Dec-18 Mar-19 Initial demand 399,0 45,3 62,2 233,5
399 444 506 740 Nb banks participating 514 249 200 474 Amount repaid so far 16,2 / 4% 1 / 2% 0,7 / 1% 0,0 Current
385,3 44,4 62,2 233,5 Italy Spain France Germany LTRO + TLTRO in May 2018 (Bn) 247 170 114 93
239 168 114 93 Repaid so far : 17,7
Source : Natixis
44
VLTRO / TLTRO III: What design?
first discussions in March
the formal announcement
TLTRO II 1 June 2020 399Bn TLTRO II 2
45Bn TLTRO II 3
62Bn TLTRO II 4 March 2021 233Bn
VLTRO / TLTRO III Launch : Sept. or Dec. 2019 Maturity : Sept. or Dec. 2021
Willingness to transform your TLTRO II into the new VLTRO
Source : Natixis
Share of peripheral credits in iBoxx indices Sensitivity to iBoxx spreads to Peripheral sovereigns spreads
Sources: Markit, Bloomberg, Natixis Sources: Markit, Bloomberg, Natixis
5.1% 9.7% 3.2% 1.8% 29.5% 5.5% 8.9% 14.8% 4.2% 0.0% 9.5% 11.5% 11.1% 5.4% 11.4% 2.6% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% ES IT
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
46 OUTLOOK RATES 2019
47 OUTLOOK RATES 2019
Source : Natixis
48 OUTLOOK RATES 2019
49 OUTLOOK RATES 2019
5 10 France Germany Italy Spain
2 France Germany Italy Spain Source : EPFR
Non-residents cumulated flows on stocks (Bn) Non-residents cumulated flows on bonds (Bn) Assets bought/sold by non-residents - Cumulated flows ($Bn) France Germany Italy Spain US Japan major EM* Equities H1-2018
1,1
47,6 25,9 H2-2018
26,7 10,3
23,2 11,9 Bonds H1-2018
0,3
49,6
H2-2018
EQ+Bonds H1-2018
48,3 46,7 25,4 H2-2018
23,6 7,8
20,7 9,4 mid-Nov.-> end Dec.
4,2 2,0 Source : EPFR *Brazil, India, Russia, China, Turkey
50 OUTLOOK RATES 2019
European elections
51
2014 2019 Change Election day* Electoral treshold (%) Multiple constituencies Belgium 21 21 = 26 5
Bulgaria 17 17 = 26
21 21 = 26 5
13 14 +1 TBD
96 96 = 26
6 7 +1 26
11 13 +2 24
Greece 21 21 = 26 3
54 59 +5 26
74 79 +5 26 5
11 12 +1 TBD 5
73 76 +3 26 4
Cyprus 6 6 = 26 1,8
8 8 = 25 5
2019 Change Election day* Electoral treshold (%) Multiple constituencies Lithuania 11 11 = 26 5
6 6 = 26
21 21 = TBD 5
6 6 = 25
26 29 +3 23
18 19 +1 26 4
51 52 +1 TBD 5
Portugal 21 21 = TBD
32 33 +1 26 5
8 8 = TBD
13 14 +1 25 5
13 14 +1 26
20 21 +1 TBD 4
73
751 705
*Note: election days are subject to change
52 OUTLOOK RATES 2019
Source : https://www.touteleurope.eu/actualite/les-institutions-europeennes.html
the proposals for laws and budgets that the European Commission initiates. The Parliament’s approval is required for the adoption of most European laws (under the
their members (consultation or direct election of candidates), including the President of the ECB and the European Commissioners.
citizens can bring petitions to directly address the European institutions.
European elections
53
party in Germany.
and currently polling around 13%.
but the party remains also very critical on any further integrational steps at the European level.
5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 j-14 a-14 j-14
j-15 a-15 j-15
j-16 a-16 j-16
j-17 a-17 j-17
j-18 a-18 j-18
j-19 Germany: Polls* for the next election (%)
Bündnis 90/Die Grünen Christlich Demokratische Union Deutschlands Alternative für Deutschland Freie Demokraten Die Linke Others Sozialdemokratische Partei Deutschlands 2014 European Parliament election 2017 Federal election Sources : Poll of polls, Natixis Note: *moving average of the last five polls available
European elections
54
political landscape has been marked by the weakening and fragmentation
the traditional parties, as well as the emergence
exceeding the 5% threshold. Several parties should fail to exceed 5% (Génération.s, UDI, Parti Communiste, Les Patriotes).
5 15 25 Union Populaire Républicaine Les Patriotes Lutte Ouvrière Parti Communiste UDI Génération.s Autres* Parti socialiste Debout la France Europe Ecologie Les Verts La France insoumise Les Républicains La République en Marche et… Rassemblement national
France : voting intentions in the European elections IFOP poll of the 31 of January 2019
Source : Opinionway, Natixis
European elections
55
unprecedented coalition of two populist parties since 2018.
the Lega has been surging in the opinion polls: 33% vs 17.4% in March 2018.
European elections.
5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 j-14 a-14 j-14
j-15 a-15 j-15
j-16 a-16 j-16
j-17 a-17 j-17
j-18 a-18 j-18
j-19 Italy: Polls* for the next election (%)
Partito Democratico Liberi e Uguali (LeU) + Europa M5S Forza Italia Lega Fratelli d'Italia (FdI) 2014 European Parliament election 2018 General election Sources : Poll of polls, Natixis Note: *moving average of the last five polls available
European elections
56
seems to be limited to Podemos at the left (14% current polls) and Vox at the far right (10%).
parties in Spain. While Podemos is a Europhile party, Vox seeks to regain some sovereignty lost but does not make eurosceptic statements.
5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 j-14 a-14 j-14
j-15 a-15 j-15
j-16 a-16 j-16
j-17 a-17 j-17
j-18 a-18 j-18
j-19 Spain: Polls* for the next election (%)
Partido popular Vox Podemos Partido Socialista Obrero Espanol Esquerra republicana Ciudadanos 2014 European parliament election 2016 General election Sources : Poll of polls, Natixis Note: *moving average
available
European elections
57
For the first time, the EPP and S&D are likely to fail to secure a majority (308 seats against 353). However, adding up the seats of the ENF, ECR, EFDD, GUE/NGL and the new parties that are not affiliated yet does not lead to a majority either (249). Above all, populist parties are very unlikely to join forces and create a combined front (limited common ground between the different parties)
GUE/NGL 51 S&D 132 Greens/EFA 41 ALDE 99 EPP 176 ENF 62 ECR 62 EFD 39 New 35 NI 8 European elections: Projection in terms of seats as of March 4th 2019 European United Left-Nordic Green Left Progressive Alliance of Socialists and Democrats Greens-European Free Alliance Alliance of Liberals and Democrats for Europe group European People's Party group Europe of Nations and Freedom European Conservatives and Reformists Europe of Freedom and Direct Democracy New unaffiliated parties Non-Inscrits 705
Source: Natixis, Poll of polls
GUE/NGL 52 S&D 191 Greens/EFA 50 ALDE 67 EPP 221 ECR 70 EFDD 48 NI 52 2014 European election results European United Left-Nordic Green Left Progressive Alliance of Socialists and Democrats Greens-European Free Alliance Alliance of Liberals and Democrats for Europe group European People's Party group European Conservatives and Reformists Europe of Freedom and Direct Democracy Non-Inscrits 751
Source: Natixis, Poll of polls
58 OUTLOOK RATES 2019
59
60
5 10 15 20 25 30 35 40 45 50 55 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000 24000 26000 96 98 00 02 04 06 08 10 12 14 16 18
Billions of $ (LHS) YoY as % in $ (RHS) YoY as % in national currencies (RHS) Sources: Centrals Banks, calculation NATIXIS
(*) US, Canada, EU 15, Japan ; China, Inde, Others emerging countries from Asia, CEEC's ; Latin America include Mexico, Russia, Norway and OPEC
61
1 2 3 4 5 6 7 8
1 2 3 4 5 6 7 8 96 98 00 02 04 06 08 10 12 14 16 18
Fed Funds Euro zone UK: base rate Japan: overnight interest rate Sources : Datastream, Fed, ECB
62
10 years 30 years 5 years 2 years Source: Datastream
63
France Germany Spain Italy Greece Portugal Sources: Eurostat, ECB, Natixis
64
20 60 100 140 180 220 260 300 340 380 420 460 500 540 580 300 600 900 1200 1500 1800 2100 2400 2700 3000 3300 3600 3900 4200 4500 4800 96 98 00 02 04 06 08 10 12 14 16 18
United States (Billions of $, LHS) Euro zone (Billions of €, LHS) United Kingdom (Billions of £, RHS) Japan (Trillions of Yen, RHS) Source: Datastream
65
66
Eonia, Euribor & Libors 29/12/2017 31/12/18 30/01/2019 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 FED 1,50 2,50 2,50 2,50 2,50 2,50 2,50 2,50 2,50 3M Libor $ 1,69 2,81 2,74 2,77 2,72 2,70 2,75 2,70 2,65 Forward 2,66 2,68 2,68 2,69 2,61 2,55 BCE 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,25 0,50 3M Euribor
0,16 0,34 Forward
Eonia
0,04 0,29 BOE 0,50 0,75 0,75 0,75 1,00 1,00 1,00 1,00 1,25 3M Libor £ 0,52 0,91 0,92 0,95 1,10 1,14 1,18 1,22 1,40 Forward 0,92 0,95 0,99 1,05 1,08 1,12 BOJ
3M Libor ¥
Forward 0,03 0,04 0,04 0,04 0,05 0,05 SNB
3M Libor CHF
Forward
67
United States (incl benefits, non financials) Euro zone United States (excl benefits, non financials) United Kingdom Japan Sources: BLS, ECB, MOF
68
United States Japan United States (Core PCE) United Kingdom Euro zone Sources: Datastream, Eurostat
69
4 6 8 10 12 14 16 4 6 8 10 12 14 16 96 98 00 02 04 06 08 10 12 14 16 18
United States Euro zone United Kingdom Japan Sources : Datastream, ONS, Eurostat, MOF Japon
70
Financial Variables Eurostoxx 600 index VIX index Iboxx euro coporate index Banks CDS 5Y premium index EONIA Spread 3-month Euribor - EONIA Spread 10 year Italian/German government bond 10 year German governement bond Euro trade-w eighted effective exchange rate Macro-economic variables Composite PMI Unemployment rate Core inflation Oil Price
71
20 40 60 80
20 40 60 03 05 07 09 11 13 15 17 19
Credit conditions - business Credit demand - business (Rhs - reversed)
Sources : Datastream, NATIXIS
Easing in credit conditions Increase in demand
CONTAGION TO STRIKE BACK IN 2019 ? DECEMBER 2018 72
0% 5% 10% 15% 20% MXN TRY JPY GBP CAD MYR NOK SEK EUR ZAR HUF COP PLN RON CZK CLP AUD TWD KRW NZD IDR PEN RUB THB CHF SGD BRL USD INR PHP CNY
Under/Over valuation of Real Effective Exchange Rate (REER) in relation to their 15 year average (source BIS)
Sources : Datastream, Natixis
73
Yen/dollar (L) Yen/euro (L) £/euro (R) Dollar/euro (R) Source: Datastream
OUTLOOK RATES 2019 74 2,72 2,58 2,50 2,48 2,48 2,50 2,53 2,56 2,59 2,62 2,72 2,75 2,76 2,76
2,4 2,5 2,6 2,7 2,8 2,9 3,0 3,1 3,2 3,3
1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 20Y 25Y 30Y Current curve 1m ago 3m ago 6m ago
USD swap curve at different dates (%) 1,8 2,0 2,2 2,4 2,6 2,8 3,0 1,8 2,0 2,2 2,4 2,6 2,8 3,0 3,2 01/19 04/19 07/19 10/19 01/20 04/20 07/20 10/20 Fed funds contracts - Curve at different dates (%)
Current levels 3m ago 1m ago 6m ago
Sources : Bloomberg
1 1 1 1 1
20 30 40 50 60 70 80 90 100 01/70 07/71 01/73 07/74 01/76 07/77 01/79 07/80 01/82 07/83 01/85 07/86 01/88 07/89 01/91 07/92 01/94 07/95 01/97 07/98 01/00 07/01 01/03 07/04 01/06 07/07 01/09 07/10 01/12 07/13 01/15 07/16 01/18 NBER recession index NY Fed recession probability 1Y ahead
75
The $ curve inversion is mostly due to technical factors, the most noteworthy being :
1. The Federal Reserve rate hikes (curve flattening is the typical configuration during monetary tightening cycle); 2. The heavy supply of Treasuries bills in the US. 3. The Zero Interest Rate Policies in Europe and in Japan which forced domestic investors to buy more US treasuries; 4. Numerous geopolitical risks surrounding Europe (Brexit, Italy) and Emerging countries (Turkey, Brazil, Argentina etc.); 5. The Trade War which, coupled other risks, triggered a massive flight to quality.
Source : NY Fed
Probability of recession according to the NY Fed
76
10 20 30 40 50 60 70 10 20 30 40 50 60 70 01/19 02/20 03/21 04/22 05/23 06/24 07/25 08/26 09/27 10/28 SOMA - Redemptions of UST & cap Fed's UST purchases (3m MA) UST SOMA redemptions Fed 30Bn cap on USTs
Sources : NATIXIS
Gross supply of USTs Amounts of UST purchased by the Fed Net supply of USTs Adjusted net supply* 2016 2 245 174 364 190 2017 2 106 193 492 299 2018 2 215 114 708 594 2019 2 379 82 772 690 2020 2 881 119 820 701 2021 3 240 103 935 833 2022 3 415 52 945 893 2023 3 477 3 909 906 *using Jan. 2019 CBO net funding needs
Gross & net supply of US treasuries ($Bn)
500 1000 1500 2000 2500 3000 3500 4000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Net supply (CBO net funding need estimates as
Gross borrowing forecasts
Gross & net supply of USTs, using CBO's net marketable borrowing estimates (Bn $)
Sources: Natixis, CBO
with without delta 2019 114 269 154 2020 82 209 127 2021 119 174 55 2022 103 152 49 2023 52 166 114 2024 3 107 104 2025
90 Fed USTs purchases with or without the 30Bn cap Source : Natixis
1 2 2 3 4 4 6 8 8 10 11 12 15 16 19 19 21 5 10 15 20 25
0,00 0,10 0,20 0,30 06/19 10/19 02/20 06/20 10/20 Forward eonias and deposit rate increase expected in bp Implied deposit rate increase as
Sources : NATIXIS
Implied rise in deposit rate (bp) Eonia fwds
+4bp Dec 19 +15bp August 2020
77
24% 45% 19% 13% 0% 10% 20% 30% 40% 50% H2-19 H1-20 H2-20 Later Natixis survey (Jan. 2019) When do you expect the first ECB hike (deposit/repo)?
78
OUTLOOK RATES 2019 79
10 15 20 25 30 35
10 15 20 25 30 35 01/19 04/19 07/19 10/19 01/20 PSPP CSPP CBPP3 ABSPP 3m average
Reinvestments for the coming year
10 20 30 40 50 60
20 30 40 50 60 Reinvestments (Bn) Net purchases (Bn) Gross purchases (Bn, 3m avg.)
Gross purchases of bonds by the Eurosystem (Bn)
Eurosystem bonds purchases (Bn)
Gross Net Gross Gross 2018 2019 2018 2019 delta PSPP 240 356 177
77% 83% PSPP 21 25 18% CSPP 48 52 6
11% 3% CSPP 1 2 181% CBPP3 24 42 22
9% 11% CBPP3 3 4 30% ABSPP 3 10 7
3% ABSPP 1 1
Total 314 461 212
26 32 24%
Source : Natixis *calculated on gross purchases
January 2018 2019 % of APP**
deviations, the Eurosystem will have to buy less BTP, SPGB, OAT and more OT, SLOVGB or German Bunds.
regular & balanced market presence during the reinvestment phase
inability to reinvest all redemptions, deviations tend to increase. Looking at
OUTLOOK RATES 2019 80
9
4
11 4 3 3 1 5 8 2 6 10
10 20
5 10 15 20 25 Targeted deviations given the capital key change (Bn) Current deviations vs previous K key (Bn) Needed corrections to respect the new key
The use of the new capital key is a bad news for Spain & Italy
Sources : Natixis,Bloomberg
2,5 3,3
0,3 0,3 0,4 0,2 0,2
1 2 3 4
How PSPP holdings moved in January 2019 ?
OUTLOOK RATES 2019 81 Source : Bloomberg (according to a survey in which 24 economists took part)
However, his mandate will end in Dec. 2019 February ( ), August ( ) & December 2018 scores
82
United States 12/29/17 12/31/18 01/28/19 Sovereign yields & spreads (end of period) Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 2-year 1,91 2,49 2,59 2,75 2,85 2,80 2,75 2,80 2,80 Fwd
2,61 2,59 2,58 2,57 2,57 5-year 2,24 2,51 2,58 2,70 2,75 2,75 2,70 2,70 2,75 Fwd
2,63 2,64 2,65 2,66 2,67 10-year 2,43 2,68 2,74 2,85 2,95 2,90 2,90 2,85 2,80 Fwd
2,80 2,81 2,83 2,84 2,86 30-year 2,76 3,01 3,07 3,05 3,25 3,30 3,25 3,25 3,25 Fwd
3,08 3,08 3,09 3,10 3,10 2Y - 5Y 33 2
2Y - 10Y 52 20 15 10 10 10 15 5 10Y - 30Y 33 33 32 20 30 40 35 40 45
Germany 29/12/2017 31/12/2018 30/01/2019 Yields & spreads (end of period) Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 2-Year
0,07 0,16 Fwd
5-year
0,15 0,38 0,46 Fwd
10-year 0,42 0,24 0,19 0,30 0,39 0,50 0,65 0,83 0,90 Fwd
0,26 0,30 0,35 0,39 0,43 30-year 1,24 0,88 0,78 0,89 0,96 1,06 1,19 1,35 1,41 Fwd
0,82 0,84 0,85 0,87 0,88 2Y - 5Y 46 28 27 33 35 35 33 31 30 2Y - 10Y 108 83 75 85 88 86 83 76 74 10Y - 30Y 82 63 59 59 57 56 54 52 51 Sovereign spreads 29/12/2017 31/12/2018 30/01/2019 10Y spreads, in bp (end of period) Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 OAT - BUND 34 47 41 47 48 45 41 40 38 BTP - BUND 153 250 241 265 285 260 230 220 210 BONO - BUND 110 117 107 126 131 125 117 114 112
OUTLOOK RATES 2019 83
84 OUTLOOK RATES 2019
85
YTD (28-Feb) 2018 2017 Equities SPX 11,5
21,8 STOXX 10,7
10,6 FTSE 6,0
11,9 TOPIX 7,6
22,2 MSCI EM $ 9,0
37,8 Govies Govies US 0,4 0,4 2,8 Govies Core Euro 0,7 1,8
Govies Periph Euro 0,8 0,5 0,9 Govies UK 0,1 0,7 1,8 Linkers EUR 0,0
1,4 B/E Inflation EUR
Credit IG EUR 1,8
2,4 IG US 2,5
6,5 HY EUR 4,1
6,7 HY US 6,4
7,5 GBI EM $ 4,3
15,2 EMBI Div.$ 5,4
10,3 Cdties Energy 22,0
6,4 Precious 2,4
12,0 Industrial 8,6
29,1 FX EUR/USD
13,8 GBP/EUR 4,9
GBP/USD 4,4
9,8 USD/JPY 0,9
USD/CNY
5,4
EM/USD 1,5
5,7 DXY 0,0 4,4
Sources: Datastream, Bloomberg, NATIXIS. Total return in local currencies
86
12/29/17 12/31/18 02/27/19 G10 (end of period) Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 EUR/USD 1,20 1,15 1,14 1,15 1,17 1,20 1,22 1,23 1,24 EUR/GBP 0,89 0,90 0,85 0,86 0,87 0,88 0,88 0,89 0,89 EUR/CHF 1,17 1,13 1,14 1,14 1,14 1,15 1,16 1,17 1,18 EUR/SEK 9,83 10,16 10,54 10,40 10,25 10,20 10,05 9,95 9,80 EUR/NOK 9,84 9,96 9,72 9,60 9,55 9,45 9,30 9,20 9,10 GBP/USD 1,35 1,28 1,33 1,33 1,35 1,37 1,38 1,39 1,39 USD/JPY 113 110 111 109 108 107 106 105 105 USD/CNY 6,51 6,88 6,69 6,75 6,70 6,65 6,65 6,60 6,60
Sources: Bloomberg, Natixis
12/29/17 12/31/18 02/27/19 (end of period) Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 USD/KRW 1 067 1 111 1 119 1 120 1 120 1 115 1 110 1 090 1 080 USD/INR 63,9 69,8 71,2 72,0 72,0 71,0 71,0 70,5 70,0 USD/BRL 3,31 3,88 3,73 3,70 3,65 3,55 3,50 3,45 3,45 USD/MXN 19,7 19,6 19,2 19,0 19,0 18,8 18,6 18,5 18,5 USD/CAD 1,26 1,36 1,32 1,32 1,31 1,30 1,29 1,27 1,25 AUD/USD 0,78 0,70 0,71 0,72 0,73 0,73 0,74 0,74 0,75 NZD/USD 0,71 0,67 0,68 0,70 0,70 0,71 0,72 0,72 0,73 USD/ARS 18,6 37,7 38,8 39,0 38,0 37,0 37,0 36,0 36,0
Sources: Bloomberg, Natixis
87
12/29/17 12/31/18 02/27/19 Energy prices (end of period) Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Brent spot 66,7 50,6 65,5 69 77 74 72 79 74 Future
66,2 65,8 65,5 64,9 64,5 WTI spot 60,5 45,2 56,9 59 67 66 65 73 68 Future
59,0 59,1 58,7 58,3 57,7
Sources: Bloomberg, Natixis
12/29/17 12/31/18 02/27/19 Metals Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Gold 1 303 1 281 1 322 1 315 1 360 1 380 1 388 1 395 1 403 Silver 16,9 15,5 15,9 15,9 16,9 17,3 17,5 17,6 17,8 Platinum 927 794 868 843 873 883 885 890 895 Palladium 1 056 1 263 1 558 1 175 1 065 1 038 1 048 1 055 1063 Aluminum 2 258 1 823 1 893 2 038 2 088 2 100 2 075 2 025 2 025 Copper 7 219 5 961 6 512 6 500 6 625 6 725 6 900 7 000 7 100 Nickel 12 714 10 623 12 901 13 125 13 500 13 625 14 000 14 275 14 400 Zinc 3 335 2 483 2 762 2 725 2 725 2 675 2 625 2 600 2 575
88
Credit Spreads 12/29/17 12/31/18 01/04/19 EUR Spreads (bp, end of period) Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Investment Grade 38 91 95 90 86 88 90 90 High Yield 248 437 453 420 409 420 428 430 US Spreads (bp, end of period) Investment Grade 106 157 159 155 150 157 165 165 High Yield 358 533 505 495 484 520 548 550 Equity indices 29/12/2017 31/12/2018 27/02/2019 Main indices (end of period) Dec-19 S&P 500 2 674 2 507 2 792
QoQ Growth
EURO STOXX 50 3 504 3 001 3 283
QoQ Growth
DAX 12 918 10 559 11 487
QoQ Growth
CAC 40 5 313 4 731 5 225
QoQ Growth
Sources: Bloomberg, Natixis
89
Eurostoxx Nikkei S&P FTSE Source: Datastream
90
1 2 3 4 5 6 7 8 9
1 2 3 4 5 6 7 8 9 93 95 97 99 01 03 05 07 09 11 13 15 17 19
S&P Nikkei Eurostoxx Source: Facset
91
92
United States Euro zone Source: Natixis Calcul
(*) The statistic is normalized between +1 et -1, being calculated as (U-D)/(U+D). A negative figure denotes a worsening of credit
figure indicates an improvement of credit quality.
93
50 100 150 200 250 300 350 400 450 100 300 500 700 900 1100 1300 1500 1700 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
High Yield (LHS) BBB (ex autos since 2003, RHS) A (RHS)
Sources: Datastream, IBOXX Natixis
94
50 100 150 200 250 300 350 400 450 500 550 600 650 700 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
High Yield (LHS) BBB (RHS) A (RHS) Source: Datastream
95
2 4 6 8 10 12 14 16 2 4 6 8 10 12 14 16 97 99 01 03 05 07 09 11 13 15 17 19
United States : total corporate United States : high yield corporate Euro zone : high yield corporate
Source : M oody's
96
Germany France Spain Italy Greece Netherlands Ireland Portugal
Sources : Datastream, World Bank, IMF, NATIXIS
97
Weight Risk factor CB Bank senior preferred Bank senior Non-preferred Bank T2 Bank AT1 Insurance Sub Non-Fin Senior
HY Non fin US IG US HY Average 5%
Structural risks 1.5 0.5
0.0
0.0
10%
Trend in credit quality 0.0 0.5 1.0 0.5 0.0 0.5 0.0
10%
Idiosyncratic and default risks 2.0 0.5
1.0
0.0
15%
Relative value (fair value)
0.5 0.0 0.0 1.5 1.0 0.5 1.5 0.0 0.5
0.0
10%
Search for Yield/Spread
0.0 1.0 2.0 1.5
1.0 1.5 0.0 1.0
5%
Spread/volatility arbitrage 0.0 0.0
0.5
0.3 1.5 0.0 2.0 0.2
10%
Political risk 0.5 0.0
0.5
0.0 0.0
10%
Central banks' policy risk
0.0 0.5 1.0 1.0 1.0
0.5 0.5
15%
Trade war / Macro & Risk aversion 1.5 0.5
0.0
10%
Technicals, incl. Supply/Redemptions
2.0 0.5 0.0
0.5 1.0 0.0 2.0
100%
Score
12.5
Allocation H1-19 MW OW MW OW MW MW OW UW UW MW UW
98
1 2 3 4 5 6 7 8 9
1 2 3 4 5 6 7 8 9 93 95 97 99 01 03 05 07 09 11 13 15 17 19
S&P Nikkei Eurostoxx Source: Facset
99
100
101
5Y Loc Yield vs 5Y-USD Real rate GDP-Inflation 1Y-forecast CB rate 1Y-forecast GDP Growth 1Y-forecast Inflation 1Y-forecast Budget (% GDP) 1Y-forecast CA (% GDP) 1Y-forecast Brazil G 9,1 6,5 5,1
6,5 8,0 1,1 2,5 3,7 4,0
Poland P 2,2
0,2 3,4 3,9 1,5 1,6 5,1 3,7 1,7 2,0
Mexico G 8,2 5,7 4,2
2,0 8,3 7,0 2,0 1,9 4,9 4,0
Indonesia G 7,8 5,2 4,0 1,9 5,1 6,0 5,8 5,1 5,1 3,2 3,8
South Africa G 8,0 5,5 2,8
1,4 6,8 6,8 1,3 1,6 4,6 5,2
Turkey I 15,6 13,1
24,0 18,4 7,4 0,7 16,2 16,5
Malaysia M 3,8 1,2 1,7 4,9 4,5 3,3 3,3 5,9 4,5 1,0 2,0
3,1 2,6 Colombia C 6,0 3,5 2,6
3,1 4,3 4,8 1,8 3,3 3,2 3,4
Thailand G 2,1
0,8 2,8 4,0 1,8 1,8 3,9 3,9 1,1 1,3
11,7 6,4 Russia M 8,0 5,5 3,3
0,6 7,8 7,0 2,3 1,5 2,9 4,8 2,6 1,7 7,1 5,1 Hungary G 2,2
1,3 3,1 0,9 1,4 4,1 3,4 2,9 3,1
1,8 1,8 Romania R 4,4 1,9 1,2 2,2 4,0 2,5 3,2 6,8 3,5 4,6 3,3
Peru G 4,5 2,0 2,1 1,2 3,6 2,8 3,5 2,5 3,9 1,3 2,4
Philippines P 8,2 5,6 4,3 1,0 6,6 4,8 4,2 6,2 6,4 5,2 3,9
Chile C 4,0 1,5 1,1
3,3 3,0 3,4 1,5 3,4 2,4 3,0 4,6
China G 2,9 0,4 0,7 4,8 6,2 2,6 4,4 6,9 6,2 2,1 2,2
1,3 0,1 India G 7,4 4,9 3,7 3,2 7,8 6,5 6,7 7,2 7,2 4,0 3,7
South Korea G 1,9
0,2 1,4 2,6 1,8 1,9 2,7 2,5 1,3 1,7 2,7 0,5 5,1 4,3 Taiwan G 0,8
1,2 2,5 1,4 1,7 2,6 2,3 1,4 1,1
14,3 12,4 Czech Republic C 1,6
2,1 2,8 1,8 2,0 4,3 2,9 2,1 2,2 1,5 0,4 1,0 0,5
102
103
Taïwan Korea Indonesia Thailand Malaysia Source: Datastream
104
Brazil Turkey Russia Sources : Datastream, NATIXIS
105
Poland Hungary Czech Republic Slovakia Sources: Datastream, NATIXIS
106
Slovenia Bulgaria Romania Sources: Datastream, Eurostat, NATIXIS
107
Russia Turkey Hungary Brazil Korea Thailand South Africa India Indonesia Argentina Sources: Datastream, IMF
108
0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0
300 600 900 1200 1500 1800 2100 2400 2700 3000 3300 3600 3900 4200 4500 96 98 00 02 04 06 08 10 12 14 16 18
Argentina : Peso/$ (100 in 1996:1, LHS) Korea: Won/$ (LHS) Turkey: Lira/$ (RHS) Emerging countries/$ (1 in 1996:1, RHS) Brazil: Real/$ (RHS) Source: Datastream
109
Tactical bets Strategic views 1M Horizon 6M horizon EQUITIES
US
Stoxx
EM
BONDS
CREDIT
IG EUR
IG US
HY EUR
COMMODITIES
Energy
Precious
Industrials
110
Euro Zone US Emerging Strategies Cash
Pay Eonia 1Y1Y
Govies
Long Bund vs BTP (H1)
FX
Long EUR and GBP vs USD
Credit IG
─ Long IG € vs IG $
Credit HY
─
Long HY € vs HY $
Equity
─
Long Defensives vs Cyclicals, Big caps, Quality
Equity
Long volatility forward
Energy
─ Long Brent vs WTI
Gold et Metals
─
─ Long Gold vs Palladium
111
112
113
114 OUTLOOK RATES 2019
OUTLOOK RATES 2019 115
EMMI tests its new hybrid methodology
EMMI publishes note
methodology
If BMR postponed by 2Y (likely) January 1st
BMR in effect
January 1st
Initial end of transition period
January 1st
Transition postponed
EMMI applied for autorisation to launch new methodology
New Hybrid Euribor launched Once the transition period ends (1 jan. 2020 or 2022)
authorisation for EMMI is not granted, BMR provisions may allow for continued use in legacy contracts, not in new contracts.
Euribor panel discontinuity risk still there
Once the transition period ends (1 jan. 2020 or 2022)
continued use in legacy contracts
Banks will keep quoting Eonias as long as needed. Eonia transactions to drop, hence a likely ESTER will become a tracker of ESTER at some point
Eonia non-BMR compliant and won’t be replaced by EMMI
ESTER chosen as the new RFR for the EZ
ESTER launched by the ECB. Q4 2019 – S1 2020 Launch of ESTER-linked derivatives.
Q4
Could be sole window to hedge ESTER-Eonia basis
Clearing Houses to accept ESTER & start ESTER discounting later ESTER term structure to create
EURIBOR EONIA
market liquidity will keep falling
OUTLOOK RATES 2019 116
Transaction based Unstable panel : 28 banks Bank lending rate Published on T
Transaction based Stable panel : 52 banks Bank borrowing rate Published on T+1
Sources : ECB & Natixis
transition to ESTER using, for an interim period, a recalibration approach, i.e. where the EONIA methodology is calculated as a fixed spread over the new ESTER.
would be based on a simple average with an
associated with a trimming mechanism at 15%
Pre-ESTER vs Eonia
Reliance of hybrid methodology levels
Source: European Money Markets Institute (EMMI)
The new Euribor hybrid methodology in brief :
ESTER;
considered as BMR compliant despite the high level of level 3 contributions (RHS table). Launch in S2 2019 ;
under the hybrid methodology, across all maturities, range between -5 basis points and
basis point vs. current methodology; A new methodology but the same old risks :
panelist has been steadily decreasing, the latest bank to leave the panel being BMPS in Jan. 2019. Only 19 banks contributing before the 15% trimming.
use of panel banks judgement (287Mlns volume / day on the 3m tenor).
OUTLOOK RATES 2019 117
15 20 25 30 35 40 45
09/12 09/13 09/14 09/15 09/16 09/17 09/18
Euribor : Number of panelists
Discontinuity / concentration risks are still high depsite the new methodology No real transition from Euribor to ESTER
OUTLOOK RATES 2019 118
200 400 600 800 1000 1200 04-18 05-18 06-18 07-18 08-18 09-18 10-18 11-18
Underlying transactions volumes
SOFRVolume BGCR Volume TGCR Volume
Specific-counterparty tri-party GC* repo transactions secured by Treasury securities + GCF* Repo transactions SOFR (Secured Overnight Financing Rate) BGCR (Broad General Collateral Rate) + bilateral FICC* cleared Treasury repos excluding “specials”
10 30 50 70 90 01-14 01-15 01-16 01-17 01-18
SOFR and Tbill spreads versus EFFR (bp)
TBILL-EFFR SOFR-EFFR GC-EFFR
TGCR (TriParty General Collateral Rate) All these indices are volume weighted medians of selected Repo transactions. SOFR in particular is published by the NY Federal Reserve and is set to replace LIBOR. Way higher underlying transaction volume than the Fed Funds (800Bn vs 60Bn) and LIBOR (1Bn). TGCR is acting as a soft floor for the Effective Fed Fund Rate (EFFR), which ensures a good correlation between SOFR and EFFR* while in excess collateral. FICC cleared transaction makes SOFR a middle-ground between EFFR and GC, or a trimmed GC. SOFR swap exposure is very similar to an off-balance sheet US Treasury exposure, so term structure of SOFR
should be similar to Treasuries.
Source : NY Fed Source : NY Fed, Bloomberg; TradeWeb
*FICC : Fixed Income Clearing Corporation *GCF : Interdealer *General Collateral
OUTLOOK RATES 2019 119
H2-17 H2-18 12-18 Q1-19 Q1-20 Q2-21 12-21 CHOICE OF RFR
SOFR is officially chosen as the official candidate for LIBOR succession Actual date : 06-17
LAUNCH OF LISTED FUTURES
Trading begins on listed Future contracts. Actual dates: CME launched SER & SFR contracts in 05-18
CCP TO ACCEPT SOFR AS PAI
SOFR to be used as Price Alignment Interest in parallel with EFFR discounting
LIBOR STOPS
SOFR is officially the USD benchmark thanks to a liquid term-structure and a wide access through CCPs
INFRASTRUCTURE FOR OIS & FUTURES
Banks and the ARRC establish standards and infrastructures for OIS & Future trading using SOFR Actual date : 04-18
FIRST SWAPS
Trading begins on SOFR linked instruments like FRN, OIS and Basis swaps Actual date : 07-18 .
FALLBACK FOR LEGACY CONTRACTS
ISDA is currently working
(mean/median). CCP no longer accept LIBOR as PAI unless for termination deals
WE ARE HERE
CME
THE END
37 issuances so far Quarterly & Monthly coupons, callables Various formats: CD, EMTN, GMTN, 144A Various sizes: several M to 2.5Bn jumbos Federal Home Loan Banks, Fannie Mae & Freddie Mac issued 70% of the total notional Papers usually get swapped back Agencies (EIB, ADB and IBRD) very active Cleared SOFR swaps (since July) SOFR vs EFFR, SOFR vs LIBOR and SOFR vs Fixed Some swaps appeared on DTCC Fallback on LIBOR could kick in a new expansion phase for SOFR linked swaps Volumes and Open Interest piled up once the issuance pipeline opened Mainly used for issuance hedges Banks could use SOFR to hedge forward repo risk, since it has, by construction, less slippage than GC or 3m Libor Aggregate Open Interest and volumes peaked during the Dec FOMC meeting
OUTLOOK RATES 2019 120 20000 40000 60000 80000 05-18 07-18 09-18 11-18 01-19
Aggregate Open Interest
SOFR3M SOFR1M 2500 5000 7500 07-18 09-18 11-18 01-19
SOFR FRN amount issued (M)
5
2 2,25 2,5 01/2019 04/2019 07/2019 03/2020
Basis structure
Spread (bp) (RHS) SOFR FUTURES FF FUTURES
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121 OUTLOOK RATES 2019