The slump in oil prices weighed heavily on sentiment today, dragging down also most other risky assets as it once again highlights the devasting effects from Covid-19. While Brent oil falls about 6%, the decline was much more visible in the American WTI reference (-40% intraday, below $12/b) where moves are amplified by the upcoming expiry of the May futures contract (tomorrow). Investors avoid having long positions after expiry date (i.e. they have to buy physical oil) because there is simply no more storage room left due to the collapse in oil consumption while supply is still ample, even with the historic output curbs. It causes the current contract to trade at the biggest discount on record to that of next month, indicating oversupply in the near term. Equities lose about 1% in the EMU and up to 2% at the start in the US though both seem to bottom out cautiously as trading evolves. UST’s outperform the German Bund today with yield changes varying from -1 bp (2-yr) to -2 bps (10yr). German yields reversed intraday losses to trade close to unchanged. Peripheral yields widen with Italy (+11 bps) underperforming  The Italian PM Conte again argued for issuing joint bonds to tackle the coronacrisis, heating up the debate already in the run-up to Thursday’s EU summit. He warned for the risk of market contagion (rising risk premia) if EU leaders would fail to come up with a proposal similar to his which could create an existential threat to the bloc once again. His comments echo French president Macron last week.

The dollar traded rather muted today. EUR/USD shrugged off early morning losses and even headed towards 1.09, defying the (mild) risk-off environment and the oil price crater. A real test didn’t occur though. Soon enough the currency pair found itself back at opening levels around 1.086/7. DXY’s attempt of clearing the 100 barrier so far failed multiple times (99.92 currently). USD/JPY (107.78) is inching higher towards 108. EUR/GBP eked out gains, mainly on sterling weakness as BoE deputy governor Broadbent painted a bleak picture of the country’s economy. He sees ‘powerful demand effects’ caused by the virus and said a 35% GDP drop in the current quarter is possible. Broadbent also thinks a lockdown of 3 months is reasonable. That would mean another 2 months of full economic outage. EUR/GBP rose from the 0.87 to 0.874, where it meets with resistance from both the 50 and the 200d Ma.

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Spanish newspaper El Pais reports that the country will propose the creation of a €1.5tn rescue fund at Thursday’s EU videoconference Summit. The recovery fund would begin operating from June 1 and issue perpetual debt. EU-wide taxes (eg carbon emissions) should cover interest payments on the bonds. The funds raised would be split over EU countries depending on the severity of the economic damage caused by the coronavirus. The cash would count as transfers and not debt, according to the newspaper.

Last week’s Argentinian offer to restructure $83bn of its foreign debt received an early thumbs down from three of its biggest creditor groups. The proposal involved a 3-yr suspension on all debt payments and a 62% haircut on interest payments. Bonds included not only debt issued since 2016, but also previously restructured bonds in 2005 and 2010. Creditors state that they need to carry a disproportionate share of the burden.

The Belgian debt agency raised €2.84bn today by tapping OLO 87 (€1.38bn 0.9% Jun2029), OLO 86 (€0.55bn 1.25% Apr2033) and OLO 80 (€0.91bn 2.15% Jun2066). The auction bid cover was 1.63. The debt agency raised €25.47bn via OLO syndications and auctions this year, which is almost 60% of this year’s upwardly revised OLO funding target (€42.85bn from €28bn).


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