FXStreet (Barcelona) – Economists at Nomura, share the possible reaction in bund yields into the Greece referendum scenarios.
Key Quotes
“We see insufficient evidence for the referendum outcome to swing decisively to either the YES or NO camp, and we maintain our low conviction default position in favour of a YES vote. Therefore we also continue our recommendation to approach the Greek situation with very light risk in terms of outright and EGB spread positions against Bunds, especially with respect to the periphery.”
“Against the backdrop of reducing risk ahead of the referendum, we prefer to take some 9bp profit on our DBR Jan19 ASW wideners and 19bp on our long IRISH credit barbell against BTPs and OATs in 2030.”
“Even though both a YES and a NO vote will not be followed by definitive automatisms, the market reaction on Monday’s opening will be binary with a pronounced “risk on or off” move. Given our expectation of a tight outcome in the referendum, we do not consider current market pricing unreasonable. We consider last Monday’s opening levels as appropriate gauges on a NO vote which would push 10y Bund yields in the vicinity of 70bp and the 10y BTP vs. Bund towards 200bp. On a YES vote we think that last Friday’s pricing (which was anticipating a constructive outcome) could be overcome and would expect 10y Bund yield to approach 1% while the 10y BTP vs. Bund spread could pierce through 120bp.”
“However, for either referendum outcome, we have a preference to (at least tactically) fade initial market moves of the magnitude outlined above. A YES vote (especially a close one) entails uncertainties if an agreement for a new programme can be reached easily as we outlined above. Moreover, the question about the sustainability of a new Greek bailout programme will remain.“
“However, we have a higher conviction to engage into EGB spread compression trades against Bunds on a NO vote induced large widening at Monday’s opening. Beyond the initial market reaction, the developments of the past week underlined our stance that the systemic risks Greece holds for the remainder of the euro area are significantly lower than in the past and do not justify a meltdown in peripherals reminiscent of the height of the debt crisis.”
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