3 March, 2020Page 1 MTS
Bond Market Outlook
By Maria Cannata
BMCG meeting of March 4, 2020
3 March, 2020Page 2 MTS
A look at the recent past
3 March, 2020Page 3 MTSPage 3 MTS
Primary markets
• Large issuance of sovereign bonds since the beginning of 2020
• In particular, very relevant demand and supply of long dated bonds
• A look at the inflation linkers sector
• Secondary markets
• General recovery on volumes traded, after a modest Q4 2019
• Yields declining and spreads vs Bund generally reducing until February 21st,
afterwards increasing tensions due to the COVID 19 contagion
• A look at bid-ask spreads
Main Evolution since 2019-end
3 March, 2020Page 4 MTSPage 4 MTS
Sovereign Primary Market / 1
Bond issuances 2020 YTD grouped by type and maturity (€bn)Country
2 - 3y 5y 7y 10y15 -
20y30y ILB
CCTeu -
FRNICTZ TOTAL
Redemptions Net issuance
Italy 5,7 7,8 5,5 10,2 10,3 7 2,9 4,6 6,9 60,9 22,7 30,7
France 7,7 7,1 6,2 12,4 6 8,5 4 0,0 0,0 52,0 0 52
Spain 7,2 6,8 1,4 13,7 1,2 6,1 1,5 0,0 0,0 38,0 23,1 14,9
Germany 9,0 8,0 0,0 9,0 0,0 3,0 1,0 0,0 0,0 30,0 22,0 8,0
Belgium 0,0 0,0 0,0 6,0 5,0 0,4 0,0 0,0 0,0 11,4 0,0 11,4
Portugal 0,0 0,0 0,7 4,0 0,8 0,0 0,0 0,0 0,0 5,5 0,0 5,5
Ireland 0,0 0,0 0,0 0,0 4,0 0,0 0,0 0,0 0,0 4,0 0,5 3,5
Austria 1,3 0,6 0,3 3,7 0,0 0,1 0,0 0,0 0,0 6,0 0,0 6,0
Finland 0,0 0,0 0,0 0,0 3,0 0,0 0,0 0,0 0,0 3,0 0,0 3,0
Netherlands 0,0 0,0 1,3 0,0 1,4 0,0 0,0 0,0 0,0 2,7 15,0 -12,3
Greece 0,0 0,0 0,0 0,0 2,5 0,0 0,0 0,0 0,0 2,5 0,0 2,5
Slovenia 0,0 0,0 0,0 1,5 0,0 0,0 0,0 0,0 0,0 1,5 1,6 -0,1
Slovakia 0,0 0,0 0,2 0,3 0,1 0,0 0,0 0,0 0,0 0,6 0,0 0,6
TOTAL by
type and
maturity30,9 27,8 15,6 56,8 34,3 25,1 9,4 3,6 6,9
An overall picture since the start of the year
3 March, 2020Page 5 MTSPage 5 MTS
Sovereign Primary Market / 2
Main remarks
• As usual, the largest amount issued was on
the 10-year, followed by longer tenors.
• Extremely low yields pushed investors to
extend duration, producing strong demand in
long maturities.
• Many syndicated issuances in the long end,
with high record order-books.
• Inflation linkers still attractive, with good
demand in auction, confirming the trend
observed at the 2019-end, where, for
instance, Italy placed 4 €bn of a new 10y
BTP€i and 6.75 €bn of a 8y BTP Italia. Indeed,
the ILB less liquidity produces a yield pick-up
of 20-25 bps, which enlarge the traditional
investor base of such market segment.
CountryDate of
issuance
Volume
(€mln)
Tenor at
issuance
Slovenia 7 Jan 2020 1.500 10 years
Ireland 8 Jan 2020 4.000 15,3 years
Portugal 8 Jan 2020 4.000 10,8 years
Germany 8 Jan 2020 9.000 10,1 years
Spain 14 Jan 2020 12.060 10,3 years
Italy 15 Jan 2020 7.000 30,6 years
Belgium 15 Jan 2020 6.000 10,4 years
France 28 Jan 2020 5.000 32,3 years
Greece 28 Jan 2020 2.500 15 years
Austria 29 Jan 2020 3.250 10,1 years
Finland 4 Feb 2020 3.000 16,2 years
Italy 11 Feb 2020 9.000 16,1 years
Belgium 18 Feb 2020 5.000 20,2 years
Spain 25 Feb 2020 5.000 30,7 years
Syndicated issuances
3 March, 2020Page 6 MTSPage 6 MTS
Yields on secondary market: short end
-0,9
-0,8
-0,7
-0,6
-0,5
-0,4
-0,3
-0,2
-0,1
0
0,1
0,2
21
/11/2
01
9
23
/11/2
01
9
25
/11/2
01
9
27
/11/2
01
9
29
/11/2
01
9
01
/12/2
01
9
03
/12/2
01
9
05
/12/2
01
9
07
/12/2
01
9
09
/12/2
01
9
11
/12/2
01
9
13
/12/2
01
9
15
/12/2
01
9
17
/12/2
01
9
19
/12/2
01
9
21
/12/2
01
9
23
/12/2
01
9
25
/12/2
01
9
27
/12/2
01
9
29
/12/2
01
9
31
/12/2
01
9
02
/01/2
02
0
04
/01/2
02
0
06
/01/2
02
0
08
/01/2
02
0
10
/01/2
02
0
12
/01/2
02
0
14
/01/2
02
0
16
/01/2
02
0
18
/01/2
02
0
20
/01/2
02
0
22
/01/2
02
0
24
/01/2
02
0
26
/01/2
02
0
28
/01/2
02
0
30
/01/2
02
0
01
/02/2
02
0
03
/02/2
02
0
05
/02/2
02
0
07
/02/2
02
0
09
/02/2
02
0
11
/02/2
02
0
13
/02/2
02
0
15
/02/2
02
0
17
/02/2
02
0
19
/02/2
02
0
21
/02/2
02
0
23
/02/2
02
0
25
/02/2
02
0
27
/02/2
02
0
Secondary market 2y-bond yields
Germany Italy Spain France Portugal
%
All 2y-bond yields in negative territory, even Italy since mid-December. Strong reduction for the
Italian bond since the beginning of the year. New divergence between core and peripheral
countries during the last week of February.
3 March, 2020Page 7 MTSPage 7 MTS
Yields on secondary market: medium term
-1
-0,8
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
0,8
1
26/1
1/2
019
28/1
1/2
019
30/1
1/2
019
02/1
2/2
019
04/1
2/2
019
06/1
2/2
019
08/1
2/2
019
10/1
2/2
019
12/1
2/2
019
14/1
2/2
019
16/1
2/2
019
18/1
2/2
019
20/1
2/2
019
22/1
2/2
019
24/1
2/2
019
26/1
2/2
019
28/1
2/2
019
30/1
2/2
019
01/0
1/2
020
03/0
1/2
020
05/0
1/2
020
07/0
1/2
020
09/0
1/2
020
11/0
1/2
020
13/0
1/2
020
15/0
1/2
020
17/0
1/2
020
19/0
1/2
020
21/0
1/2
020
23/0
1/2
020
25/0
1/2
020
27/0
1/2
020
29/0
1/2
020
31/0
1/2
020
02/0
2/2
020
04/0
2/2
020
06/0
2/2
020
08/0
2/2
020
10/0
2/2
020
12/0
2/2
020
14/0
2/2
020
16/0
2/2
020
18/0
2/2
020
20/0
2/2
020
22/0
2/2
020
24/0
2/2
020
26/0
2/2
020
28/0
2/2
020
Secondary market 5y-bond yields
Germany Italy Spain France Portugal
Similar trend for 5-y tenor, in general with higher yields, with the only exception of the German
bond, showing an extremely low level.
3 March, 2020Page 8 MTSPage 8 MTS
Yields on secondary market: 10 year benchmarks
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1,8
21
/11/2
01
9
23
/11/2
01
9
25
/11/2
01
9
27
/11/2
01
9
29
/11/2
01
9
01
/12/2
01
9
03
/12/2
01
9
05
/12/2
01
9
07
/12/2
01
9
09
/12/2
01
9
11
/12/2
01
9
13
/12/2
01
9
15
/12/2
01
9
17
/12/2
01
9
19
/12/2
01
9
21
/12/2
01
9
23
/12/2
01
9
25
/12/2
01
9
27
/12/2
01
9
29
/12/2
01
9
31
/12/2
01
9
02
/01/2
02
0
04
/01/2
02
0
06
/01/2
02
0
08
/01/2
02
0
10
/01/2
02
0
12
/01/2
02
0
14
/01/2
02
0
16
/01/2
02
0
18
/01/2
02
0
20
/01/2
02
0
22
/01/2
02
0
24
/01/2
02
0
26
/01/2
02
0
28
/01/2
02
0
30
/01/2
02
0
01
/02/2
02
0
03
/02/2
02
0
05
/02/2
02
0
07
/02/2
02
0
09
/02/2
02
0
11
/02/2
02
0
13
/02/2
02
0
15
/02/2
02
0
17
/02/2
02
0
19
/02/2
02
0
21
/02/2
02
0
23
/02/2
02
0
25
/02/2
02
0
27
/02/2
02
0
Germany Italy Spain France Portugal
Secondary market 10y-bond yields
%
10y-benchmark yields at record lows, due to concerns regarding global growth. During the past
week, this trend was accentuating for Germany, while partially reversing for Italy, as
consequence of COVID-19 contagion.
3 March, 2020Page 9 MTSPage 9 MTS
Yields on secondary market: a look to spreads vs 10y Bund
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1,8
21
/11/2
01
9
23
/11/2
01
9
25
/11/2
01
9
27
/11/2
01
9
29
/11/2
01
9
01
/12/2
01
9
03
/12/2
01
9
05
/12/2
01
9
07
/12/2
01
9
09
/12/2
01
9
11
/12/2
01
9
13
/12/2
01
9
15
/12/2
01
9
17
/12/2
01
9
19
/12/2
01
9
21
/12/2
01
9
23
/12/2
01
9
25
/12/2
01
9
27
/12/2
01
9
29
/12/2
01
9
31
/12/2
01
9
02
/01/2
02
0
04
/01/2
02
0
06
/01/2
02
0
08
/01/2
02
0
10
/01/2
02
0
12
/01/2
02
0
14
/01/2
02
0
16
/01/2
02
0
18
/01/2
02
0
20
/01/2
02
0
22
/01/2
02
0
24
/01/2
02
0
26
/01/2
02
0
28
/01/2
02
0
30
/01/2
02
0
01
/02/2
02
0
03
/02/2
02
0
05
/02/2
02
0
07
/02/2
02
0
09
/02/2
02
0
11
/02/2
02
0
13
/02/2
02
0
15
/02/2
02
0
17
/02/2
02
0
19
/02/2
02
0
21
/02/2
02
0
23
/02/2
02
0
25
/02/2
02
0
27
/02/2
02
0
Italy - Germany Spain - Germany France - Germany Portugal - Germany
10-year sovereign bonds: spreads vs Bund
%
Evolution of spreads vs Bund emphasises the fly to quality effects generated by fears regarding
the COVID-19 impact on the economic growth.
3 March, 2020Page 10 MTSPage 10 MTS
Yields on secondary market: long term benchmarks
-0,3
0
0,3
0,6
0,9
1,2
1,5
1,8
2,1
2,4
2,7
Secondary market 30y-bond yieldsGermany Italy Spain France
On the 30-y tenor, evident impact of the large demand for long dated bonds, seeking
investors a yield pick-up. Impressive decline in negative territory of 30-y Bund at
February-end.
3 March, 2020Page 11 MTSPage 11 MTS
Quite stable bid-offer spreads
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
21
-no
v-1
9
23
-no
v-1
9
25
-no
v-1
9
27
-no
v-1
9
29
-no
v-1
9
01
-dic
-19
03
-dic
-19
05
-dic
-19
07
-dic
-19
09
-dic
-19
11
-dic
-19
13
-dic
-19
15
-dic
-19
17
-dic
-19
19
-dic
-19
21
-dic
-19
23
-dic
-19
25
-dic
-19
27
-dic
-19
29
-dic
-19
31
-dic
-19
02
-gen
-20
04
-gen
-20
06
-gen
-20
08
-gen
-20
10
-gen
-20
12
-gen
-20
14
-gen
-20
16
-gen
-20
18
-gen
-20
20
-gen
-20
22
-gen
-20
24
-gen
-20
26
-gen
-20
28
-gen
-20
30
-gen
-20
01
-feb
-20
03
-feb
-20
05
-feb
-20
07
-feb
-20
09
-feb
-20
11
-feb
-20
13
-feb
-20
15
-feb
-20
17
-feb
-20
19
-feb
-20
21
-feb
-20
23
-feb
-20
25
-feb
-20
27
-feb
-20
10 Yrs Italian Benchmark 10 Yrs Spanish Benchmark 10 Yrs French Benchmark 10 Yrs German Benchmark
Bid-offer spreads on MTS cash market (price cents)
Significant widening only in the past week, particularly evident only in the Spanish market.
3 March, 2020Page 12 MTSPage 12 MTS
Volatility Jump for COVID-19
VIX Index at record levels
3 March, 2020Page 13 MTSPage 13 MTS
COVID-19 depresses equity markets
Unexpected severity of the contagion risks to compromise global growth, worsening
dramatically market perspectives.
3 March, 2020Page 14 MTS
Prospects for the near future
of the bond market
3 March, 2020Page 15 MTSPage 15 MTS
Primary markets
• Having sovereign issuers profited of the good market moment, 33% of the 2020
bond issuance programme is completed.
• In SSA field, the issuance of green or sustainable bonds was very relevant in the
past 3 months: only in euro, 14.16 billion, of which 7.45 by European entities, and
the remaining from various other regions in the world. Several other issuances in
different currencies (USD, Yen, GBP, CAD, AUD).
• Considering the very strong demand for these assets, it is reasonable to expect
that trend continue.
• There at least three big Euro sovereigns that are seriously considering to enter in
this market: Germany, Italy and Spain. The most like timing is the third quarter of
the year for Germany (but an acceleration is not excluded) while for the other two
may be also Q4.
Expectations of new issuances
3 March, 2020Page 16 MTSPage 16 MTS
Level of rates
• Concerns regarding economic growth are making difficult envisaging material
changes in the monetary policy. If someone, only measures contrasting risks of
recession consequent to COVID-19 seem reasonable
• Government bonds have been placed at record low yields. Even countries like Italy,
where political tensions are often playing against, the average cost of funding has
touched the historical minimum. Nevertheless, some increase is possible, as far as a
widening of spreads vs Germany by peripheral countries.
Liquidity of the secondary market
• The liquidity could be impacted by tensions caused by the uncertainty on global
economy, that makes less important other idiosyncratic risks.
Yields perspectives
3 March, 2020Page 17 MTSPage 17 MTS
Possible factors impacting market
Global Environment
• COVID-19 effects on the economic growth seem to be the most relevant at the
moment
• Tensions in Middle Est and North Africa
• Actual consequences of the tariff war
Political Risks
• Outside Europe, possible aggressive tones in the USA electoral campaign
• Local elections in Italy
3 March, 2020Page 18 MTS
Thank you!