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675947afb24a207400936f7acfe4d79a30447be68a6dc451da9a4d9cda7d08b2;;[{"layout":"detailed","uid":28747,"publicationDate":"01 Dec 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2022_184349.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJPMscoAUz340rTaIW0R-VPg=&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - ECB QT requires private investors to step up","titleDe":"","titleIt":"","product":"Chart of the Week","synopsis":"<p><ul class=\"ucrBullets\"><li>There are only two weeks until the next ECB meeting, where ECB President Christine Lagarde is likely to announce the 'principles' of the quantitative tightening (QT). We expect ECB QT to start in 2Q23 and to involve only the APP. On the other hand, bond redemptions within the PEPP will be fully reinvested, in our view. We think that the portfolio runoff will be gradual, with the central bank reducing its APP holdings by 5% per year (EUR 15bn per month). Next year, the ECB will not reinvest roughly EUR 130bn of maturing bonds, EUR 90bn of which will be government securities within the PSPP. This amount is not particularly high compared to the total size of the PSPP. Nevertheless, while the ECB has helped absorb net supply of government securities up to this year, in 2023, QT will increase the amount of bonds that will have to be bought by private investors. <\/li><li>QT will come in a year characterized by still elevated net supply, as eurozone countries will continue to face high net borrowing requirements. Our Chart of the Week compares the net supply of government securities (including both T-bills and medium\/long-term bonds) and the government securities purchased by the ECB under both the PSPP and the PEPP. Red dots indicate the net supply that must be absorbed by private investors, i.e. the expected difference between net supply of govies and purchases by the ECB. While we expect net supply of govies to be in line with this year\u00b4s, the launch of QT is likely to increase net issuance to markets to EUR 500bn, the highest amount since 2010.<\/li><li>Hence, private investors, who, unlike the ECB, are price-sensitive, will have to step up their bond purchases. This could cause some selling pressure on EGBs, especially at the beginning of the year and following their recent rally. However, we only see a limited increase in yields as we expect the APP portfolio runoff to be gradual. Moreover, we do not expect a significant widening of sovereign spreads, given that the ECB has effective tools to fight fragmentation.<\/p><\/li><\/ul><p class=\"ucrIndent\"><p>Francesco Maria Di Bella<\/p><\/p><p class=\"ucrIndent\"><p> FI Strategist<\/p><\/p><p class=\"ucrIndent\"><p> +39 02 8862-0850<\/p><\/p><p class=\"ucrIndent\"><p> francescomaria.dibella@unicredit.eu<\/p><\/p><p class=\"ucrIndent\"><p> UniCredit Bank AG<\/p><\/p><p class=\"ucrIndent\"><p> UniCredit Research<\/p><\/p><p class=\"ucrIndent\"><strong><p> Piazza Gae Aulenti, 4<\/strong> - Tower CI-20154 Milan<\/p><\/p>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Francesco Maria","last":"Di Bella","link":"https:\/\/unicreditresearch.eu\/index.php?id=analyst&L=N3tsp4rk3rRef&tx_research_piedition%5Banalyst%5D=131&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=28af0fd2e8ef8c37a4854c55e529c47a"}],"countries":[{"name":"Euroland","ticker":"","link":"https:\/\/unicreditresearch.eu\/index.php?id=country&L=N3tsp4rk3rRef&tx_research_piedition%5Bcountry%5D=25&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=fd74dfc966e72d45ff2580813616e07a"}],"hash":"675947afb24a207400936f7acfe4d79a30447be68a6dc451da9a4d9cda7d08b2","available":"0","settings":{"layout":"detailed","size":"default","showanalysts":"2","showcompanies":"2","showcountries":"2","showcurrencies":"2","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"300","synopsisexpand":"1","shownav":"0","oldestedition":"","limit":"5"}},{"layout":"detailed","uid":27695,"publicationDate":"13 Apr 22","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2022_183024.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVIRKs7N21TUl4ouDWG55vMJ3BVRmOvrLfQ==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - BTPis are cheap vs. BTPeis, even amid inflation\/liquidity differences","titleDe":"","titleIt":"","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> BTPis have recently underperformed BTPeis, with their 5Y real yield spread widening to 90bp. In the following, we investigate the key drivers of this spread and assess whether its current level offers a good entry point to go long BTPis vs. BTPeis.<\/li><li> Based on our model, the current pickup is appealing, even considering liquidity or inflation differences between BTPis and BTPeis.<\/li><li> Moreover, going long BTPis vs. BTPeis has worked as a defensive trade in past episodes of BTP-Bund spread widening. BTPis also represent a cheaper alternative to other European inflation-linked bonds for investors concerned that inflationary pressure will increase further.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Francesco Maria","last":"Di Bella","link":"https:\/\/unicreditresearch.eu\/index.php?id=analyst&L=N3tsp4rk3rRef&tx_research_piedition%5Banalyst%5D=131&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=28af0fd2e8ef8c37a4854c55e529c47a"}]},{"layout":"detailed","uid":26914,"publicationDate":"22 Dec 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2021_182037.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVCsY1pNwWYpSeN7QVT9NIgfs0wGw0dvVmg==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Italy\u00b4s funding in 2022: Supply to remain robust at the extra-long end","titleDe":"","titleIt":"","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Italy\u00b4s 2022 gross funding needs are expected to be EUR\u00a0330bn. We expect EUR 300bn of gross M\/L term debt supply (excluding buybacks, retail and international bonds).<\/li><li> Cash deficit is expected to be EUR 100bn, with risks to the downside, and should be covered by EUR\u00a073bn in net issuance of M\/L term debt, EUR 23bn from EU funds and EUR 14bn from retail\/international bonds. We pencil in negative net BOT issuance (EUR -10bn).<\/li><li> ECB net purchases are expected to be EUR 60bn (75% of net issuance), providing less support than in 2021, when purchases were around 170% of net issuance.<\/li><li> Italy aims to keep increasing the average life of its debt by reducing the share of funding at the shorter tenors and increasing it at the extra-long end.<\/li><li><strong> Our favorite supply-related trades are: <\/strong> long 5Y and 10Y BTPs vs. 7Y BTPs, a 10\/30Y BTP steepener, short CCTeu Apr29 in ASW vs. BTPs and long BTPei May30 vs. BTPei May26.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Luca","last":"Cazzulani","link":"https:\/\/unicreditresearch.eu\/index.php?id=analyst&L=N3tsp4rk3rRef&tx_research_piedition%5Banalyst%5D=39&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=44e3fa0de8cdd1ffaea59e3843112f22"},{"first":"Francesco Maria","last":"Di Bella","link":"https:\/\/unicreditresearch.eu\/index.php?id=analyst&L=N3tsp4rk3rRef&tx_research_piedition%5Banalyst%5D=131&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=28af0fd2e8ef8c37a4854c55e529c47a"}],"countries":[{"name":"Italy","ticker":"IT","link":"https:\/\/unicreditresearch.eu\/index.php?id=country&L=N3tsp4rk3rRef&tx_research_piedition%5Bcountry%5D=5&tx_research_piedition%5Baction%5D=country&tx_research_piedition%5Bcontroller%5D=Edition&cHash=39d7224c0452f3251d42f8f8656acb2b"}]},{"layout":"detailed","uid":26768,"publicationDate":"01 Dec 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2021_181865.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVCsY1pNwWYpS6p9s1QyHBAmt72bVunj69Q==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - EGB gross issuance to decline in 2022 but remain above EUR 1tn","titleDe":"","titleIt":"","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> In 2022, gross financing needs in the eurozone will decline sizeably, from EUR 1.5tn to EUR 1.25tn, although they will remain much higher than before COVID-19. This decline reflects a more than proportional decrease in eurozone countries\u2019 cash deficit (from EUR 820bn to EUR 500bn), while M\/L bond redemptions will increase (by around EUR 90bn).<\/li><\/ul><ul class=\"ucrBullets\"><li> We expect gross issuance of M\/L domestic bonds to amount to EUR\u00a01.1tn, EUR 70bn less than in 2021. M\/L net supply is likely to amount to EUR 380bn (vs. EUR 540bn in 2021), hence covering 75% of net financing needs (vs. 64% this year). We predict a decline in the net issuance of MM securities from EUR 45bn to EUR 25bn.<\/li><\/ul><ul class=\"ucrBullets\"><li> Relief in funding needs coming from EU sources will likely be moderate (EUR 25bn), as we assume only loans to be used under the NGEU to finance part of the cash deficit. Compared to this year, there will probably be less recourse to other funding sources (from EUR 200bn to EUR 80bn), which include use of cash and the sale of international and retail bonds.<\/li><\/ul><ul class=\"ucrBullets\"><li> Net supply of M\/L bonds is likely to be very intense in 1Q22, given the end of bond net purchases under the PEPP in March. Average maturity at issuance is likely to decline slightly in 2022, as we expect investors to be more sensitive to duration risk.<\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Francesco Maria","last":"Di Bella","link":"https:\/\/unicreditresearch.eu\/index.php?id=analyst&L=N3tsp4rk3rRef&tx_research_piedition%5Banalyst%5D=131&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=28af0fd2e8ef8c37a4854c55e529c47a"}]},{"layout":"detailed","uid":25468,"publicationDate":"07 Jun 21","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2021_180333.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVCsY1pNwWYpSfk0SvE3S76oaIky_YUON5g==&T=1&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Declining inflation risk premium likely to drive eurozone breakeven rates lower in the medium term","titleDe":"","titleIt":"","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Breakeven rates have recently increased in the US and in the eurozone and have become a hot topic. While a brighter growth outlook and mounting inflation expectations, together with the Fed\u00b4s new average inflation targeting, help to explain the increase in breakeven rates in the US, we find the increase in breakeven rates in the eurozone to be less in line with macro fundamentals and the inflation outlook. <\/li><li> We estimate the inflation risk premium in the eurozone and we find that it has contributed to the rise in breakeven rates in the eurozone in the past few months.<\/li><li> We also show that the recent increase in the inflation risk premium in the eurozone has little to do with idiosyncratic factors and more to do with the same phenomenon in the US. For this reason, its increase looks vulnerable to a reversal. <\/li><li> Moreover, with the medium\/long-term inflation outlook in the eurozone remaining rather subdued, medium-term inflation expectations are unlikely to improve further. We would therefore use any increase in eurozone breakeven in the next few months (due to a temporary increase in headline inflation) to enter short positions on linkers vs. long in nominal bonds with a medium-term horizon. <\/li><\/ul>","synopsisDe":"","synopsisIt":"","analysts":[{"first":"Francesco Maria","last":"Di Bella","link":"https:\/\/unicreditresearch.eu\/index.php?id=analyst&L=N3tsp4rk3rRef&tx_research_piedition%5Banalyst%5D=131&tx_research_piedition%5Baction%5D=analyst&tx_research_piedition%5Bcontroller%5D=Edition&cHash=28af0fd2e8ef8c37a4854c55e529c47a"}]}]


Francesco Maria Di Bella
FI Strategist
UniCredit Bank AG, Milan
Piazza Gae Aulenti, 4 - Tower C
I-20154 Milan
+39 02 8862-0850


Francesco Maria Di Bella is a Fixed Income Strategist and he is based in Milan. After short experiences in other European banks, he joined UniCredit Research in September 2018. Francesco holds a ...

Rates Perspectives - EGB Supply to rise in 2023
01 Dec 2022
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