Europe may be fixed for the next week or two (until someone once again figures out that by manipulating the market, the ECB is merely making it easier for peripheral governments to do nothing to fix their unprecedented intra-Eurozone imbalances, as has been the case all along with the only strategy Europe has deployed to date namely kicking the can), but that doesn't mean all event and newsflow ends. Here is what to expect out of the insolvent continent as it attempts to put a very volatile (and violent) 2012 to bed with just one more month. Of particular note: €123 billion in Euro coupon payments in the month of December, which serves as a timely reminder that in 2013 European banks better be ready to buy up the record gross and net issuance of their sovereigns with gusto, or else Europe may promptly become "unfixed" all over again.
From SocGen:
Most of the focus this month will understandably be on the US fiscal cliff. An estimated $661bn of temporary tax cuts and spending changes is set to take effect in early January if Congress does not act. Also, extraordinary measures could temporarily delay the US reaching the $16.3trn debt ceiling from year-end until mid-February/early March. Bridging the political divide between Congressional leaders and the President on both issues is again proving no easy task and should favour USTs relative to Bunds into Q12013, especially with the Greek debt buy-back programme now clearing the way for the disbursement of fresh bailout funds.
Total eurozone bond flows in December are roughly EUR123bn, divided between bonds (EUR52.7bn) and bills (EUR70.96bn). Coupon payments from Italy top the list with an estimated EUR30.185bn in bonds (18.685bn on 13 December and 11.57bn on 31 December), and EUR26.2bn in bills. Payments from Germany total EUR21bn, of which EUR17bn is for redemption of 2y notes on 14 December. If the tightening in periphery spreads over Bunds of recent days is any guide, appetite for risk could force the 10y Bono/Bund spread to test the October low of 371bp and the 10y BTP/Bund spread to break below 300bp for the first time since March.
No change in ECB policy rates is expected on December 6th. SG economics (On our minds today, 30 November) argue that the central bank will leave the initiative firmly with national governments, preferring to keep the (limited) powder dry until absolutely necessary. Three-month Eonia already trades at 0.065%, down 2bp since the ECB last revised its projections in September for 2012/13 real GDP and CPI.
Timeline (subject to change)
- Dec 4 – BEL sells 98d, 161d bills
- Dec 4 – EFSF sells max EUR1.5bn 91d bills
- Dec 5 –SPA sells 2015, 2019, 2022 bonds
- Dec 5 – GER sells EUR4bn 2y notes (tap)
- Dec 6 - ECB rate meeting, press conference
- Dec 6 – FRA sells 2018, 2019, 2027 bonds
- Dec 10 – NETH sells 3mth bills
- Dec 10 – FRA sells bills
- Dec 11 – SPA sells 12mth, 18mth bills
- Dec 11 – AUS sells bonds
- Dec 11 – GRE sells bills
- Dec 11 – BEL sells bills
- Dec 12 – Fed FOMC rate decision
- Dec 12 – ITA sells 3mth, 12mth bills
- Dec 13 – SPA sells bonds
- Dec 13/14 – EU Leaders’ summit
- Dec 13 – ITA sells 3y bonds
- Dec 14 – GERM bond redemption, est EUR17.0bn
- Dec 14 – BEL sells bonds
- Dec 15 – ITA bond redemption est EUR18.685bn
- Dec 16 – Japanese general election
- Dec 17 – FRA sells bills
- Dec 18 – SPA sells 3mth, 6mth bills
- Dec 24 – FRA sells bills
- Dec 26 – FRA bond redemption, est EUR5.435bn
- Dec 27 – ITA sells 6mth bills
- Dec 28 – ITA sells 5y, 10y bonds
- Dec 31 – ITA bond redemption, est EUR11.517bn
- Jan 1 2013 - US fiscal cliff
- Expiry of 2001, 2003 and 2009 tax cuts (est $281bn)
- Expiry of payroll tax holiday (est $115bn)
- Deadline for addressing tax extenders and business depreciation (est $75bn)
- Expansion of Alternative Minimum Tax (est $40bn)
- Expiration of extended unemployment benefits ($34bn)
- Imposition of patient protection and affordable care act taxes (est $24bn)
- Expiration of Medicare ‘doc fix’ (est $14bn)
- Jan 2 2013 - US imposition of sequester cuts (est $78bn)
Euro coupon payments are over EUR123bn in December
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