Opinión de mercados

Tapering. Who goes first?

Today we start the eighth absolute return strategy of the year aiming to capture an anualized return of 4.75% on october 5th.


Finally, the Jackson Hole meeting last august 26th was uneventful as expected.

There is a clear driver in the market which is on top of others: tapering.

The FED has clearly signalled to start cutting its bond buying program this year although with an eye on the potential impact of the delta variant on economic and employment growth. The last data of NFP with a 235k new jobs created (lowest since january) however has gained market participants attention. Not only because the number was half the expected, but also because wages increase of +0.6% was double than that expected. This provides a mixed picture on economic traction and inflation expectations. Not the best mix for a tapering decision. Next meeting is september 22, where Mr Powell could signal the start later in the year while buying a bit more time without derailing market expectations created.

The ECB on the other hand, could announce a reduction of its Pandemic Emergency Purchasing Program from the current monthly 80bn as early as in the next meeting this Thursday. So, the ECB could start reducing the bond purchase before the FED; something unthinkable not long ago. The hawks at the ECB have been loader than the doves which maintain a lower bar. It is surprising also because the EU GDP is still 2.5% below pre pandemic numbers, while the US if already 0.8% ahead. In any case, some of the hawks aurgument for tapering earlier is that the bond buying program does not adress the supply bottleneck, as it is desing to boost demand which is already flying.

Another good indicator for future growth projections is the gap between 2-10 year bonds of US Treasury which stands at 115 bps, the steepest since mid july. 10 yr is at 1.36% at the time of writing. Another indicator is the ratio of unemployement per job opening which comes below 1 for the first time since the start of the pandemic.

We are in a risk appetite mood with investors looking for yield even in the bond market as the scarcity of assets to invest is clear. Spanish Treasury met a demand of 38.5bn euros in their 5bn issuance of the first green bond, maturity 20 years. Early in the year Germany met similar demand in May in its 30 yr issuance. Tomorrow will issue an additional bond for the 10 yr tenor. France and Italy also issued green bonds, and Britain plans to do so on september 20th.

Another driver of very short-term fixed income is the debt ceiling discussion for an october expansion, though technically very improbable, is has steeped the 2 month TB yield significantly (graph below)

Meanwhile, FX volatilities remain anchored showing a range trading pattern in the month ahead. The greek gamma for eurusd and eurgbp OTC options is showing very neutral which reiterates the range trading projection. There is also increasing appetite for some EM currencies that still have room to recover from pre pandemic levels.

USD positioning (CFTC data) is also interesting. Market is long USD. +usd 46bn since january; usd 28bn since june whithout making any change in DXY price during that period. And in 5
months market has flipped positions from short usd 17bn to 11bn long. (see graph)

Finally, the BOE meets just a day after the FED, on september 23rd, with its senior Michael Saunders pointing today to a raise in rates by next year. Prime minister Mr. Johnson explained plans to impose a payroñ tax of 1.5% to raise gbp 36bn over the next three years to meet with NHS fixing and other social care funding needs.

Other event risk to watch is the German federal election to be held on september 26th where according to latest poll the conservative CDS/CSU are trailing 6 points below (all time low) the left SPD led coalition with extreme left Linke and Greens.

All in, we expect an increase in the volatility in coming weeks as tapering solutions unfold, but a consistent break of recent range seems unlikely given lack of extreme positioning both in spot and in the derivatives markets. Our strategies try to capture this potentially upcoming scenario as well a potential deviaton from it.