CACIB - Interest Rates Weekly 20230131

Interest Rates Weekly 16:46 CET
31 January 2023
C https://research.ca-cib.com
Core blimey
 Core inflation developments should remain the ECB’s focus. With
EUR15bn per month announced, details about QT should be less Bert Lourenco
important. Head of Rates Research
+44 20 7214 6474
 Markets are not listening to the Fed, which augurs for a hawkish bias. bert.lourenco@ca-cib.com
We suggest staying short USD and EUR duration.

Alex Li
 Whilst the ECB should deliver 50bp and the Fed 25bp of hikes, the Head of US Rates Strategy
uncertainty this week is greatest for the BoE and its forecast updates. +1 212 261 3950
alex.li@ca-cib.com
 In our focus section, PCA of the EUR curve suggests negative policy Marine Mazet
This document should not be used by a non legitimate recipient.
rates and QE will reflect an anomaly on a long-term horizon. Interest Rates Strategist
+33 1 41 89 36 23
By our estimates, not since 1995 has the Fed hiked more than expected via market marine.mazet@ca-cib.com
pricing. This would imply a very strong likelihood of shifting to 25bp hiking
increments but also maintaining an overtly hawkish bias so that financial conditions Guillaume Martin
are not excessively or prematurely loosened, inclusive of mortgage rates. To be Interest Rates Strategist
sure inflation is trending lower from very high levels but core PCE remains around +33 1 41 89 37 66
4%. And, despite negative news headlines, labour markets remain healthy due to guillaume.m.martin@ca-cib.com
pent up demand so economic slack remains razor thin.

To us, this suggests the Fed (and other central banks) will be slow to respond to
declining activity because of the uncertainty related to getting core inflation back to
2%. Unusually, we will side with the Fed this time implying we expected higher
yields ahead as cutting prospects are gradually erased. For the ECB, its biggest
concern should be the ongoing acceleration of core inflation measures so a lot
more work remains to be done on the inflation fighting front which in our view
implies a higher terminal rate than currently assumed (Figure 1). As a customary
laggard, details about QT and possibly remuneration of excess government
liquidity should be released which may support short-end bond ASW.
Moreover, the BoE’s meeting could inject more volatility into markets as this will
also be accompanied by its Monetary Policy Report. Recall that its base case has
been for a deep consumer-led recession helping to drive inflation lower as part of
its projections. So far below-trend growth rather than a deep recession seems to
be panning out also with a healthy job market but fiscal constraints should temper
nominal growth. This implies a higher degree of short-term uncertainty but all major
central banks, except the BoJ will be in balance sheet reduction mode for the
foreseeable future or at least until policy easing is signalled.
Fig 1. Forward terminal rates relative to our forecasts (%)

7 ECB Terminal BoE Terminal Fed Terminal
0
Jul-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Nov-22 Dec-22 Jan-23
Source: Credit Agricole CIB, Bloomberg
1
Interest Rates Weekly 31 January 2023 (16:46 CET)
Views and recommendations summary

Fig 2. View summary
EGB***
Duration Curve* Vol** ASW***
Spreads
EUR Short Neutral Neutral Wider Neutral
USD Short Flatter Neutral Neutral n/a
* 5-10Y IRS, ** 1Yinto10, *** DBR/UST - swap, **** 10Y DBR-BTP
View rationale/change:
Our latest forecast update for the most part shows a continuation of themes
established last year. Sticky and well above target inflation should push terminal
rates to be priced higher than is presently the case, so that restrictive policy
prompts more yield curve inversion. A core view we retain is that positive real Bund
yields are coming. This is because positive real yields will reflect policy rates set at
higher above inflation targets and QT augmenting the free float of government
bonds. Also, though government revenues are being boosted by inflation, the
amount of net issuance, especially for Germany, will grow significantly this year.
Nevertheless, we expect modest EGB widening pressure, so long as governments

avoid big deficit-driven spending boosts. Moreover, the ECB’s new TPI tool risks
being triggered if periphery bond yields rise abruptly. Like headline inflation, we are
probably past the peak in rates volatility, but this does not mean we are going back
to a low volatility environment. Bund ASW have compressed significantly over the
past few weeks and could start widening due to an increase of paying flow or pick
up in volatility. Due to the strong performance of the belly of the curve of late,
tactically we turn neutral on the curve as growth or a global rates repricing could
induce short-term steepening.
By contrast, the outlook for USD rates seems more complicated, because we think
we are likely to enter an easing cycle within the next two years, which makes calling
the timing of this most critical (US forecast update). However, for the next few
months, short-end yields should oscillate between pricing in a Fed terminal rate of
5.00% or 5.25% as seems most favoured and our view. The inflation-driven nature
of this cycle, and the lack of labour market slack, should however place the Fed on
hold for a substantial period rather than just a few months as presently priced in.
The Fed’s job of tackling inflation remains some way from being finished, so we
suggest remaining short US Treasuries aiming for 10Y yield to return above 4%
albeit not making a new cyclical high. Likely premature rate cut expectations (in
conjunction with the recent increase in EGB and JGB yields) have resulted forward
steepening of the curve, but we think higher USD front-end rates are still in the
making, which suggests a renewed bear flattening of the curve. Later this year, a
difficult debt ceiling impasse and the strong likelihood of off-the-run Treasury
buybacks should introduce volatility (and opportunities) in the Treasury market.
Fig 3. Open trades

Carry-
Opening Currency Trade Idea Entry Current P&L Target Stop Author
Roll
17/01/2023 USD Long 6M2Y ATMF payer Short 6M1Y1Y ATMF midcurve -5.5 -5.3 0 3.9 0.0 0.0 Guillaume Martin
22/11/2022 EUR Conditional bear steepener 10Y10Y – 10Y2Y -11.2 -0.9 0.0 9.9 0.0 0.0 Guillaume Martin
Source: Crédit Agricole CIB, Bloomberg
2
EUR: keep it simple

Linear or non-linear, that is the question
Judging by the modest contraction of Eurozone real (rather than nominal) retail
sales, households are starting to be impacted by both higher prices and perhaps
the lagged impact of the ECB’s tightening measures. Businesses have also had to
deal with higher input costs and in their case there is more direct evidence of a
tightening of borrowing. According to the ECB’s latest Bank Lending Survey,
lending to businesses continues to be “tightened somewhat” but not in a
considerable manner. And yet, due to lagged effects, core inflation continues to
rise with upside surprises recently recorded for Spain and Belgium (Figure 4) and
France’s energy subsidies have started being rolled back which will add to its
headline and core inflation pressures henceforth.
Fig 4. Lending standards have scope to tighten a lot more (%)

80.0 Change in Lending Standards to Businesses Core HICP 6.0
70.0
5.0
60.0
50.0
4.0
40.0
30.0 3.0
20.0
2.0
10.0
0.0
1.0
-10.0
-20.0 0.0
Mar-03 Jul-05 Nov-07 Mar-10 Jul-12 Nov-14 Mar-17 Jul-19 Nov-21
Source: Credit Agricole CIB, Bloomberg
Historically, there has been some loose relationship between bank lending
standards and inflation in the sense that lending conditions have been tighter when
inflation was close to 2%. But the current inflation overshoot strikes as unusual and
certainly not due to private sector (bank driven) money creation. However, just as
fiscal retrenchment would help reduce public sector driven demand, a slowdown in
bank lending should have the same effect on private sector demand. Although
growth is well below trend, this suggest the ECB still needs to reign in demand
further by tightening conditions into a restrictive stance, particularly if external
demand (eg, from China) gets a boost.
In our view, there is still scope to price in a higher ECB terminal rate because of
the size of the inflation overshoot and because there are no signs of a deep
Eurozone recession in the making. Whilst headline inflation has likely passed its
peak, investors should remain positioned for higher nominal and real yields in our
view given core inflation dynamics and the ECB’s likely ongoing required hawkish
response. Also, a shift higher in the terminal rate and real yields should benefit
ASW spread widening positions given renewed paying flows and flight to safety
flow as central banks continue to tighten policy.
Whilst longer term we believe the EUR curve (2-10Y) should continue to bear
flatten, we have previously noted that the 5Y point on the EUR curve seems
expensive. This we believe is partially driven by the inversion of the USD money
market segment, so outright short or paid positioning seems more apt in our view
at present. Indeed, if we conduct a (non-linear) regression of the EUR 2-5-10Y IRS
butterfly vs the 1YF1Y OIS rate, Figure 5 shows the belly to be expensive.
In general, we would caution that increased curvature exposure is optimal in
advance or at the start of tightening cycle but not at its later stages. As per our
regression, note how 2-5-10Y curvature increases initially but then falls as policy
rates are pushed beyond neutral creation the non-linear directionality. Hence,
3
aside from a tactical directionality neutralised position, we would not pay the belly
of the 2-5-10Y butterfly to express a bearish stance.
Fig 5. Non-linear IRS 2-5-10Y vs 1YF1Y OIS Fig 6. Linear IRS 5-10-30Y vs 1YF1Y OIS
40 100
30 80
20
60
10
0 40
-10 20 y = 19.99x + 4.9647
-20 R² = 0.8553
0
-30
y = -6.8836x 2 + 20.806x - 7.7027 -20
-40
R² = 0.4422
-50 -40
-1.00 0.00 1.00 2.00 3.00 4.00 -1.00 0.00 1.00 2.00 3.00 4.00
Source: CME, Bloomberg Source: Crédit Agricole CIB

Conducting the same regression (five years of data and the same independent
variable) on the EUR 5-10-30Y butterfly instead does however show a linear
relationship to 1YF1Y OIS. Again the belly of the butterfly appears rich, which
reflects the inversion of the overall IRS curve, in our opinion. From a relative value
perspective, this suggest paying the belly of the EUR 5-10-10Y butterfly is a more
optimal way to position for more curvature. For macro investors, we suggest
avoiding much curve exposure and suggest staying focused on short-end
exposure. Paying the back end of the EUR money market sector, where cuts have
also started to be priced in should suffice for the cleanest exposure to a higher
ECB terminal rate.
bert.lourenco@ca-cib.com
YTD issuance and February outlook

The big 10 EGB issuers have issued EUR140bn so far this year, vs a EUR1260bn
annual target. Funding progress therefore stands at around 11%, which is a bit
below the 12% observed in 2022 and 2021. Compared to last year, Belgium had a
bit of head start while the Netherlands and Portugal lagged behind (Figure 7).
The weighted average duration (WAD) of EGB supply dropped compared to last
January with 8.3 of WAD in January 2023 vs >10 WAD since Covid (Figure 8). The
main reasons are the high borrowing costs and still elevated volatility which reduce
the appetite and ability of DMOs to issue longer papers. The lower duration of
supply likely contributed to the easy absorption of supply in January.
There was a total of seven syndications in January, all of them in the 10-20Y region.
We expect fewer syndications in February but with a higher duration (30Y OAT,
20Y OLO, 15Y SPGB or SPGBei, BTPei or 30Y BTP). We therefore would not be
surprised if the WAD of supply were to jump in February.
Beyond February, we expect the WAD to stabilise or decrease overall. On the one
hand, high WAD could be supported by improving liquidity conditions, receding
volatility and inverted curves. On the other hand, without seasonal demand or ECB
support, supply digestion is a concern and DMOs should remain cautious not to be
too greedy.
Gross issuance and redemptions should decrease to EUR116bn and EUR31bn
respectively in February, resulting in net issuance of EUR85bn (Figure 9). All
countries but Ireland will have positive net issuance in February. The Netherlands
will be the most at disadvantage when comparing the flows to the size of the
market. Compared to January, the net issuance of core and semi-core countries
will almost be halved while the net issuance of peripheral countries will double in
February. This could support a steepening of peripheral curves vs core and semi-
core, and a widening of peripheral swap spreads relative to OAT or Bund swap
spreads.
4
Fig 7. Funding progress in January Fig 8. WAD of supply going down Fig 9. EGB net issuance* in Q123
2021 2022 2023 WAD of EGB Jan-23 Feb-23 Mar-23
50%
14 supply % 3.0 Total 91.1 85.0 44.5
45%
2.5
AT 7.1 1.0 8.5
40% 12
BE 7.0 5.3 4.0
35% 2.0 FI
10 4.4 1.5 1.5
30% 1.5 FR 26.7 16.5 9.7
8 GE
25% 28.0 7.8 10.8
1.0
20% 6 IE 3.5 0.0 -5.8
0.5 IT 14.2 27.0 -2.9
15%
4 NL -6.5 7.8 4.5
10% 0.0
PT 3.0 1.3 1.3
5% 2 -0.5
SP 3.6 17.0 13.0
0% 0 -1.0 *gross issuance - redemptions
FR
FI
NL
IE
IT
SP
AT
BE
PT
GE
Jan-16 Jan-18 Jan-20 Jan-22
Source: DMOs, Crédit Agricole CIB Source: DMOs, Crédit Agricole CIB Source: DMOs, Crédit Agricole CIB
Term premium and QT

It has been largely demonstrated that QE helped compress all kinds of credit and
term premia. As the ECB is about to embark on its QT, it is logical to think that the
reverse effect could happen on the EUR debt market...
According to our model, the Bund term premium was around -2.6% between 2019
and 2021, which corresponds to the maximum ECB easing period. Term premium
was then pressured by (1) the prospect of forever low rates amid subdued inflation,
(2) ultra-low volatility boosting risk taking and (3) the ECB buying long-duration
bonds, thereby reducing the debt free float as well as the duration risks held by
private investors. The term premium increased in 2022 amid rate path uncertainty,
peaking volatility and ECB policy normalisation. It has been range bound since the
middle of 2022, averaging -0.85%.
We find that the Bund term premium can be a proxy through a combination of (1)
implied volatility and (2) ECB excess liquidity with a R² of 0.85. According to this
regression, a EUR1trn decrease in excess liquidity would imply a 47bp increase in
the term premium. In 2023, we foresee an ECB balance sheet reduction of around
EUR1.15trn (EUR966bn from TLTRO repayment and EUR180bn from QT) and
can assume that excess liquidity reduction will more or less match this figure. All
else being equal, the reduction of excess liquidity in 2023 should push the 10Y
Bund term premium up by 55bp. That said, when taking the ECB’s QT on a
standalone basis, its slow pace would result in less than 10bp of term premium
widening in 2023 according to our estimates.
Fig 10. 10Y Bund term premium Fig 11. 10Y Bund term premium and ECB excess
liquidity
Risk free rate Germany 10Y Term Premium Model
7 Germany 10Y Term Premium 2.0 %
%
6 Germany 10Y Yield
5 1.0
4
3 0.0
2
-1.0
1
0 -2.0
-1 y= 0.03*2y2y_nvol-0.47*ECB_XLIQ+cst
-2 -3.0 R²= 0.85
-3
-4 -4.0
Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 Jan-23
Jan-98 Jan-02 Jan-06 Jan-10 Jan-14 Jan-18 Jan-22
Source: Crédit Agricole CIB Source: Crédit Agricole CIB
5
Moreover, a higher term premium does not necessarily mean a steeper curve.
Typically, in 2022, term premium rose by roughly 75bp and the 2-10Y Bund slope
flattened by 80bp. Indeed, short-term inflation expectations rose as inflation
escalated then short-term real rates jumped as the ECB got serious in tackling
inflation pressures, outpacing the rise in long-term inflation expectations and long-
term real rates. In our view, until the rate hike cycle is not fully factored in and
inflation is in a more comfortable area, a wider term premia is unlikely to steepen
the Bund curve on a sustainable basis.
Finally, we find no evidence that QT led to a persistent trend toward a higher term
premium in the US. This can be partly explained by the fact that QT and more
globally monetary tightening have had an adverse impact on risk assets and
supported long-term debt. Such a phenomenon could hamper the widening of the
Bund term premium during the ECB’s QT.
marine.mazet@ca-cib.com
6
USD: FOMC under the spotlight

Downshift fully priced in, but will the Fed surprise us?
We expect the Fed to downshift the pace of rate hikes for a second straight meeting
at the February FOMC, raising rates by 25bp to bring the target range to 4.50-
4.75% after a 50bp hike in December. Though we believe a case can still be made
to continue front-loading with another 50bp move, we acknowledge that the
balance of opinion of FOMC members is clearly in favour of another downshift, and
with no pushback on market pricing of 26bp, a 25bp hike is now the base case.
In fact, the Fed has rarely surprised markets in recent years, especially during
tightening cycles, with surprises becoming less common since we entered the new
millennium and in general happening more frequently during easing cycles.
Contributing to this trend is the fact that unscheduled meetings, which tend to
surprise, generally happen when the Fed is responding to a crisis by cutting, eg,
the financial market crisis from 2007-10, and the initial Covid response in March
2020. Meanwhile, hikes essentially always take place during scheduled meetings;
there have been no intra-meeting rate hikes.
Fig 12. Only two Fed surprises during tightening cycles

Bloomberg Survey vs
FOMC Date Target Direction Change Discount
Survey Actual
6/15/2022 1.50%-1.75% 1.25%-1.50% Surprise Tightening 0.75% 1.75%
2/2/2000 5.75% 6.00% Surprise Tightening 0.25% 5.25%
Source: Bloomberg, Crédit Agricole CIB
According to Bloomberg survey data going back to the late 1980s, there are only
two examples of surprise moves during a tightening cycle (see Figure 12).
 The first was the June 2022 meeting, when expectations were centred on a
50bp hike as the Fed approached its blackout period. However, during the
blackout period, new stories suggested the Fed was planning on hiking by
75bp, prompting market pricing to fully adjust before the move, even if the
Bloomberg consensus used in the analysis had not quite yet, so we would not
see that as a real surprise.
 The second was in February 2000, when the Fed hiked by 25bp and the
consensus in the Bloomberg survey was for a larger 50bp hike.
Fig 13. Only two Fed surprises during tightening cycles
Alternatively, we have examined one-day changes in Fed funds futures front

contract (FF1) on FOMC dates going back to 1989 (see Figure 13). When a one-
day change was positive during rate hikes, unless the front contract rolled to the
next one, the Fed hiked more than market expectations. Hence, a highly positive
one-day change in futures pricing. It is clear that not since 1995 has the Fed hiked
more than expected via market pricing. During the 1993-95 tightening cycle, the
7
Fed doubled the policy rate from 3.00% to 6.00% to combat high inflation, when
the core CPI ran about 3%.
With markets and nearly every economist expecting a 25bp hike on 1 February
FOMC meeting, the more interesting aspect of the meeting will be the guidance.
We expect the Fed to remain relatively hawkish. Though there is no dot plot
released in February, we look for Chair Jerome Powell to repeat that the Fed
expects rates to move above 5%, with a pause not yet under consideration.
Consistent with guidance of a similar fashion in recent speeches, we currently
expect additional 25bp hikes in each of March and May to bring the terminal rate
to a target range of 5.00-5.25%. We also look for the Fed to continue pushing back
against market pricing of cuts in late 2023. With the Fed wary of a renewed
increase in inflation if it eases off the brakes too early and concerned that any
“unwarranted easing” of financial conditions would make its job harder, we see rate
cuts as unlikely to arrive until 2024, even if inflation continues moving down.
The rates market has traded in a range, awaiting the Fed, the Bank of England,
and the ECB meetings as well as key data releases later this week. Demand for
Treasuries has been strong, with January month-end auctions all stopping through
market levels. Recession fears have been front and centre, as the intermediate
sector hovers near its richest level in a decade. We believe the front end has room
to rise in yield as the market still under-prices the risk of higher policy rates (see
Figure 14).
Fig 14. Front-end Treasuries have room to rise in yields
February refunding announcement preview

On 30 January, the Treasury announced higher estimated borrowing requirements
for Q123 despite looming debt limit. The estimate is about USD353bn higher than
its last quarterly projection in October due to the lower Q422 quarter-end cash
balance and expected lower tax receipts and higher outlays. The Treasury
forecasts a Q123 quarter-end cash balance of USD500bn, compared to the current
level of USD569bn.
We expect coupon auction sizes to remain stable at the February refunding:
USD40bn 3Y note, USD35bn 10Y note, and USD21bn 30Y bond, unchanged from
the November refunding.
We believe there is ample room for the Treasury to increase bill supply. Bills are
about 16% of the total marketable debt, which the Treasury believes is in the low
end of the desirable range between 15% and 20% (see Figure 15). Bill auction
sizes have increased since the start of the year, and are likely to stay elevated for
a few weeks until tax returns start to roll in, in our view (see Figure 16).
The market will also be on the lookout for Treasury buybacks comments. Buybacks
were actively discussed at the November 2022 refunding as part of “liquidity
support and cash and maturity management,” after the topic resurfaced following
Treasury Secretary Janet Yellen had expressed concerns about “a loss of
adequate liquidity in the market” in October 2022. Liquidity conditions have
8
improved over the past couple of months. Meanwhile, there have been suggestions
that the Treasury could use buybacks to delay the debt limit.
In the February dealer questionnaire, the Treasury asked dealers’ views about
reducing the number of CUSIPs for 2Y, 3Y, 5Y, and 7Y notes to improve liquidity.
One possibility is to have one new issue and two reopening auctions for these
maturities, similar to the auction schedule of 10Y, 20Y, and 30Y on-the-runs. In this
case, the maturities would be staggered across the calendar quarter. We will look
for recommendations from the Treasury Borrowing Advisory Committee (TBAC) in
terms of likelihood and timing of such auction changes.
Fig 15. Bill supply has room to increase Fig 16. Bills cheapen relative to OIS with rising supply
0.1
Bills Notes Bonds TIPS FRNs
0.0
3% Bills are
8% 16% 16% of -0.1
total -0.2
16% marketable
debt -0.3
-0.4
3m Bill-OIS Spread
-0.5 6m Bill-OIS Spread
57%
-0.6
Jan-21 Jul-21 Jan-22 Jul-22 Jan-23
Source: Bloomberg, Crédit Agricole CIB Source: Bloomberg, Crédit Agricole CIB
alex.li@ca-cib.com
9
Focus: EUR curve PCA shifts

This is an excerpt of the Interest Rates Focus: Recent developments of EUR swap
curve dynamics
The return of inflation, a real game changer?

2022 was without any doubt a turning point in the dynamics of the EUR curve, as
the ECB had to reverse course after a decade long dovish era. This led to a singular
situation in terms of realised volatility and pairwise correlations of the different
curve tenors (Figures 17 and 18). As we draw closer to the peak of ECB rates and
inflation (finally) starts to normalise, we will look for hints regarding the upcoming
EUR swap curve dynamics and assess whether the usual relationships among the
curve still hold, especially when it comes to curvature.
Fig 17. Yearly average of annual realised volatility since Fig 18. Pairwise correlations of daily variations. Upper
2000 (bp/y) right Jun-Dec 2022, Lower left 2000-23
Full range 2nd / 3rd quartile 2022 Median
140
120
100
80
60
40
20
0
1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y12Y15Y20Y25Y30Y
Source: Crédit Agricole CIB Source: Crédit Agricole CIB
In our study, we will mostly focus on overlapping PCA computed on the daily
variations of the different tenors of the EUR swap curve on a 1M window, as we
want to capture breaks in correlation and minimise the bias of longer-term trends.
The curve remains mostly directional

So far this year, changes in the curve shape remain mostly directional, with 92%
of the variance explained by the first PC, which features loadings of the same sign
for every tenor of the swap curve. However, the meaning of a directional curve has
drastically changed. Before 2022, strong forward guidance and low ECB rates
completely dampened the volatility of the short end of the curve which made the
average move of the curve either a clear bull flattening and bear steepening. Figure
19 highlights the change in the PC1 loadings of the different tenors1, which are now
much more concentrated. Currently, the dynamics of the curve are close to those
prevailing in the 2002-06 period, which comes as no real surprise given the
absolute level of rates and the data dependant nature of the ECB monetary policy.
A PC1 shock is now closer to a translation for rates above 2Y, although the PC1
loading of the 2Y tenor is currently decreasing rather rapidly since the pivot
narrative gained momentum.
The curvature points have decisively changed

The previous comparison with the 2002-06 regime still holds when looking at the
current hierarchy between PC2 loadings (Figure 20), with the most notable
differences being the greater distance between the 20Y and 30Y loadings and a
rather stable hierarchy between 2Y and 5Y, which seems inherited from the stock
effect of the ECB’s balance sheet. Once again, the overall lower volatility of the
1
Since PCA is a projection on an orthogonal base, the loadings are unitless and are estimated
subject to a non-zero multiplication factor, which we standardised in this study. The most
important notion here is the relative distance between loadings
10
loadings is a noticeable feature, especially for the 10Y tenor compared to the
previous era.
The evolution of the loadings with regards to the third principal component is not
as conclusive in our framework.
Fig 19. PC1 loadings, PCA on rolling 1M window

2Y 5Y 10Y 20Y 30Y
0.5
0.4
0.3
0.2
0.1
-0.1
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Source: Crédit Agricole CIB
Fig 20. PC2 loadings, PCA on rolling 1M window

2Y 5Y 10Y 20Y 30Y
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
-1
-1.2
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Unlearning some of the lessons learnt in the previous cycle

Combining the different loadings for DV01 weighted positions on different curve
trades, we find that:
1. Slope trades held for a long timeframe will have an unstable exposure to the
overall level of rates since PC1 loadings of the 2Y, 20Y and 30Y tenors are
now less stable.
2. 2-10Y+ steepeners performance will be less sensitive to the moves of the 10Y
rate and more to the slope of the EUR money market strip, which means they
will perform better comparatively in a falling rate environment while steepening
phases are likely to be smoother. 2-10Y, 2-20Y and 2-30Y are now less
sensitive to the overall movement of the rate curve than in the past with a
greater sensitivity to the second principal component. If current dynamics hold,
this means that the potential for a strong dis-inversion of the curve will need to
come from a PC2 movement, which statistically limits the speed and
magnitude of potential steepening of the 2-10Y for instance.
3. The higher PC3 sensitivity of the 2-10Y slope makes it de facto exposed to
inflation shocks and therefore changes in terminal rate expectations, which
makes 2-20Y and 2-30Y an overall better steepener trade.
4. 5-10Y is now quasi exclusively immune to rates directionality and mostly driven
by the slope of the backend of the OIS forwards (Figure 21). 5-30Y and 10-
30Y are negatively exposed to PC1 and are now positively exposed to PC3.
This makes the DV01 weighted 5-10-30Y fly an extremely (negative)
directional trade on top of high PC2 and PC3 exposure.
11
5. Current absolute level of rates, macro uncertainty and neutral balance of risk
weakened the relationship between rates volatility and rates level (Figure 22).
Exposure of curve trades to rates volatility is therefore less linear, as the
exposure to volatility is split between several principal components.
Fig 21. 5-10Y vs ESTR Forward slope (PC2 proxy) (%) Fig 22. 1Y10Y swaption nvol (bp/y) vs 10Y swap rate (%)
5-10Y Proxy for ESTR Forward slope Sep 2021-Sep 2022 since Sep 2022
0.5 180
160
0.4
140
0.3
120
0.2 100
0.1 80
60
0
40
-0.1
20
-0.2 0
Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 0 1 2 3 4
Source: Crédit Agricole CIB, CME Source: Crédit Agricole CIB
guillaume.m.martin@ca-cib.com
12
Appendix 1: EUR issuance and EGB cash flows

Fig 23. Issuance events for the coming week
Date Country Bond Amount in EURbn Event

31-Jan Germany BKO 0 03/13/25 6.00 Auction
31-Jan Italy BTPS 3.4 04/01/28 4.00 Auction
31-Jan Italy BTPS 4.4 05/01/33 5.00 Auction
31-Jan Italy CCTS Float 04/15/26 1.50 Auction
01-Feb Germany DBR 2.3 02/15/33 5.00 Auction
02-Feb France FRTR 0 11/25/31 Auction
02-Feb France FRTR 2 11/25/32 10 - 11.5 Auction
02-Feb France FRTR 0 1/2 06/25/44 Auction
02-Feb Spain SPGB 2.8 05/31/26 Auction
02-Feb Spain SPGB 1.4 04/30/28 5-6 Auction
02-Feb Spain SPGB 3.45 07/30/43 Auction

02-Feb Spain SPGBEI 1 11/30/30 0.25 - 0.75 Auction
03-Feb Belgium TBD TBD ORI
Fig 24. Gross issuance Fig 25. Redemptions Fig 26. Coupons
45 EURbn 30 EURbn 10.0 EURbn
40 9.0
35 8.0
20 7.0
30
6.0
25
5.0
20
4.0
15 10
3.0
10 2.0
5 1.0
0 0 0.0
30-Jan 06-Feb 13-Feb 20-Feb 30-Jan 06-Feb 13-Feb 20-Feb 30-Jan 06-Feb 13-Feb 20-Feb
Fig 27. Weekly cash flows and net supply** Fig 28. YTD issuance and funding progress by country
Redemption(s) Coupons YTD issuance to be issued
Gross issuance Net Supply* 350
50 EURbn 283 287
EURbn 262
40 300
30 250
20
200 149
10
0 150
-10 100
-20 38 40 45
50
-30 14 3 17
-40 0
30 Jan 06 Feb 13 Feb 20 Feb AT BE FI FR GE IE IT NL PT SP
Please check our EGB issuance spreadsheet for more details.
13
Fig 29. Flows for the week of 30/01/2023

AT BE FI FR GE IE IT NL PT SP Total
Gross issuance 1.00 0.25 0.00 11.50 11.00 0.00 9.00 0.00 0.00 6.00 38.75
Redemptions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 21.67 21.67
Net issuance 1.00 0.25 0.00 11.50 11.00 0.00 9.00 0.00 0.00 -15.67 17.08
Coupons 0.00 0.00 0.00 0.00 0.00 0.00 4.04 0.00 0.00 4.55 8.58
Net supply* 1.00 0.25 0.00 11.50 11.00 0.00 4.96 0.00 0.00 -20.21 8.50

Gross issuance 0.00 0.00 0.00 0.00 4.75 0.00 5.00 6.00 1.25 0.00 17.00
Redemptions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net issuance 0.00 0.00 0.00 0.00 4.75 0.00 5.00 6.00 1.25 0.00 17.00
Coupons 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net supply* 0.00 0.00 0.00 0.00 4.75 0.00 5.00 6.00 1.25 0.00 17.00

Gross issuance 0.00 0.00 0.00 15.00 2.50 0.00 9.00 0.00 0.00 6.00 32.50
Redemptions 0.00 0.00 0.00 0.00 20.50 0.00 0.00 0.00 0.00 0.00 20.50
Net issuance 0.00 0.00 0.00 15.00 -18.00 0.00 9.00 0.00 0.00 6.00 12.00
Coupons 0.00 0.00 0.00 0.00 1.43 0.21 0.26 0.00 0.90 0.00 2.80
Net supply* 0.00 0.00 0.00 15.00 -19.43 -0.21 8.74 0.00 -0.90 6.00 9.20

Gross issuance 0.00 5.00 1.50 0.00 10.00 0.00 13.00 0.00 0.00 0.00 29.50
Redemptions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net issuance 0.00 5.00 1.50 0.00 10.00 0.00 13.00 0.00 0.00 0.00 29.50
Coupons 0.55 0.00 0.00 0.28 0.00 0.00 0.00 0.00 0.00 0.00 0.83
Net supply* -0.55 5.00 1.50 -0.28 10.00 0.00 13.00 0.00 0.00 0.00 28.67
Fig 33. Total flows for the upcoming four weeks

Gross issuance 1.00 5.25 1.50 26.50 28.25 0.00 36.00 6.00 1.25 12.00 117.75
Redemptions 0.00 0.00 0.00 0.00 20.50 0.00 0.00 0.00 0.00 21.67 42.17
Net issuance 1.00 5.25 1.50 26.50 7.75 0.00 36.00 6.00 1.25 -9.67 75.58
Coupons 0.55 0.00 0.00 0.28 1.43 0.21 4.30 0.00 0.90 4.55 12.22
Net supply* 0.45 5.25 1.50 26.22 6.32 -0.21 31.70 6.00 0.35 -14.21 63.37
Source all charts: DMOs, Crédit Agricole CIB * Net supply = Gross issuance – Redemptions – Coupons - ECB purchases
14
Appendix 2: USD issuance and UST cash flows

Fig 34. Issuance events for the coming four weeks
Date Bond/Notes Amount in USDbn Tap/New

No scheduled issuance.
Fig 35. Gross issuance Fig 36. Coupon debt redemptions* Fig 37. Treasuries coupons*
160 200 35.0
USDbn USDbn USDbn
140 180 30.0
160
120 25.0
140
100
120 20.0
80 100
15.0
60 80
60 10.0
40
40 5.0
20
20
0 0.0
0
30-Jan 06-Feb 13-Feb 20-Feb 30-Jan 06-Feb 13-Feb 20-Feb
30-Jan 06-Feb 13-Feb 20-Feb
Fig 38. Weekly cash flows and net supply** Fig 39. YTD issuance and funding progress by maturity
Gross issuance Treasuries coupons* YTD issuance To be issued
Coupon debt redemptions* Net Supply**
200 USDbn
USDbn 600
462 440 473
100 500 385
400 364
0 300 248
210
200 144
-100
80 77
100
17
-200 0
-300
30 Jan 06 Feb 13 Feb 20 Feb
*CA-CIB estimated amount, excluding Fed holdings. ** Net supply = Gross issuance – Redemptions - Coupons - Fed purchases
15

2Y FRN 2Y Note 3Y Note 5Y Note 7Y Note 10Y Note 20Y Bond 30Y Bond 5Y TIPS 10Y TIPS 30Y TIPS Total
Gross issuance 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Redemptions* 80.05 53.58 0.00 26.36 23.55 0.00 0.00 0.00 0.00 0.00 0.00 183.54
Net issuance -80.05 -53.58 0.00 -26.36 -23.55 0.00 0.00 0.00 0.00 0.00 0.00 -183.54
Coupons* 0.00 1.85 0.00 3.24 4.84 0.00 0.00 0.00 0.00 0.00 0.00 9.92
Net supply** -80.05 -55.43 0.00 -29.60 -28.39 0.00 0.00 0.00 0.00 0.00 0.00 -193.46

Gross issuance 0.00 0.00 40.00 0.00 0.00 35.00 0.00 21.00 0.00 0.00 0.00 96.00
Redemptions* 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net issuance 0.00 0.00 40.00 0.00 0.00 35.00 0.00 21.00 0.00 0.00 0.00 96.00
Coupons* 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net supply** 0.00 0.00 40.00 0.00 0.00 35.00 0.00 21.00 0.00 0.00 0.00 96.00

Gross issuance 0.00 0.00 0.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 9.00 15.00
Redemptions* 0.00 0.00 24.63 0.00 0.00 37.75 0.00 4.74 0.00 0.00 0.00 67.12
Net issuance 0.00 0.00 -24.63 0.00 0.00 -37.75 15.00 -4.74 0.00 0.00 9.00 -52.12
Coupons* 0.00 0.00 1.35 0.00 0.00 12.52 2.82 14.42 0.00 0.00 0.66 31.11
Net supply** 0.00 0.00 -25.98 0.00 0.00 -50.27 12.18 -19.16 0.00 0.00 8.34 -83.23

Gross issuance 22.00 42.00 0.00 43.00 35.00 0.00 0.00 0.00 0.00 0.00 0.00 142.00
Redemptions* 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net issuance 22.00 42.00 0.00 43.00 35.00 0.00 0.00 0.00 0.00 0.00 0.00 142.00
Coupons* 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net supply** 22.00 42.00 0.00 43.00 35.00 0.00 0.00 0.00 0.00 0.00 0.00 142.00
Fig 44. Total flows for the upcoming four weeks

Gross issuance 22.00 42.00 40.00 43.00 35.00 35.00 15.00 21.00 0.00 0.00 9.00 253.00
Redemptions* 80.05 53.58 24.63 26.36 23.55 37.75 0.00 4.74 0.00 0.00 0.00 250.66
Net issuance -58.05 -11.58 15.37 16.64 11.45 -2.75 15.00 16.26 0.00 0.00 9.00 2.34
Coupons* 0.00 1.85 1.35 3.24 4.84 12.52 2.82 14.42 0.00 0.00 0.66 41.03
Net supply** -58.05 -13.43 14.02 13.40 6.61 -15.27 12.18 1.84 0.00 0.00 8.34 -38.69
Source all charts: DMOs, Crédit Agricole CIB

* We exclude redemptions and coupon payment from Fed holdings.
** Net supply = Gross issuance – Redemptions - Coupons
16
Appendix 3: EUR Dashboard

Spreads and their three-month change vs Bunds (bp)
2Y 3M ▲ 5Y 3M ▲ 10Y 3M ▲ 30Y 3M ▲
Swap* -65 24 -64 27 -60 29 -13 21
OAT 8 -1 30 -2 47 -4 78 -4
BTP 48 -22 131 -29 187 -20 209 -5
Bono 24 5 62 6 99 -5 149 -8
UST 160 -89 134 -85 125 -66 142 -66
Gilt 86 -48 92 -68 105 -33 146 -3
JGB -264 -66 -215 -23 -183 3 -65 -3
EUR Swap* (%) EUR Swap Curve (bp)

4.50 Slope Spot 3M ▲ 2Y ▲
4.00 3.30 2-5Y -34 -42 -43
3.50 2.96 2.90
3.00 2-10Y -40 -57 -75

2.38
2.50 5-10Y -6 -15 -32
2.00
10-30Y -52 5 -83
1.50
1.00 5-30Y -58 -10 -115
0.50 2-30Y -92 -52 -158
0.00
-0.50
2Y 5Y 10Y 30Y
3M change 2Y change Spot
EUR Swaption Normal Implied (bp) EUR ZC Inflation (%)

Straddles Spot 3M ▲ 2Y ▲ 6.0
3M10Y 111 -43 76 5.0
1Y1Y 92 -39 74
4.0
2Y2Y 99 -35 74
3.0 2.40 2.30 2.33 2.27 2.29 2.31 2.31
5Y5Y 92 -25 49
2.0
10Y10Y 76 -11 24
1.0
20Y20Y 52 -5 4
0.0
1Y 1YF1Y 2YF1Y 3YF1Y 4YF1Y 5YF1Y 6YF1Y
Spot 3M ago 2Y ago
References (%)
ECB Depo ESTR Fixing 3M Euribor 6M Euribor 3M Bund GC RX1 EURUSD HICP YoY
2.00 1.91 2.48 2.96 -0.17 136.71 1.09 9.20
* Swaps vs 6M Euribor.
17
Appendix 4: USD Dashboard

Spreads and their three-month change vs Treasuries (bp)
2Y 3M ▲ 5Y 3M ▲ 10Y 3M ▲ 30Y 3M ▲
Swap* -27 11 -6 1 2 5 37 -10
DBR 160 -90 134 -85 125 -67 142 -66
OAT 152 -89 104 -83 78 -63 64 -62
Gilt 74 -42 43 -18 20 -34 -4 -63
CAN 51 -6 61 -19 62 -17 68 -15
ACGB 112 -9 37 -37 2 -26 -24 -32
JGB 424 -24 349 -62 307 -70 207 89
USD Swap* (%) USD Swap Curve (bp)

5.0 4.52 Slope Spot 3M ▲ 2Y ▲
3.73 3.53 2-5Y -79 -24 -112
4.0 3.29
2-10Y -98 -24 -191
3.0
5-10Y -19 1 -78

2.0
5-30Y -44 14 -151
1.0 10-30Y -24 13 -72
0.0 2-30Y -123 -11 -263
-1.0
2Y 5Y 10Y 30Y
3M change 2Y change Spot
USD Swaption Normal Implied (bp) USD ZC Inflation (%)

Straddles Spot 3M ▲ 2Y ▲ 3.4
3M10Y 112 -30 49 3.2
1Y1Y 117 -34 100 3.0
2Y2Y 112 -33 73 2.8 2.69 2.59
5Y5Y 94 -14 30 2.6 2.51
2.36 2.44 2.50
10Y10Y 72 -8 12 2.33
2.4
20Y20Y 51 -7 2 2.2
2.0
1 1F1Y 2F1Y 3F1Y 4F1Y 5F1Y 6F1Y
Spot 3M ago 2Y ago
References (%)
IOER Fed Funds SOFR GCF Repo 3M Libor TY1 DXY CPI YoY Core PCE YoY
4.40 4.33 4.30 4.32 4.83 114.34 101.77 6.50 4.42
* Swaps vs 3M Libor.
18
Appendix 5: Forecasts
Yields and Rates forecasts
Current Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24
EUR Refi 2.50 3.50 4.25 4.25 4.25 4.25 4.25 4.00 3.75
Depo 2.00 3.00 3.75 3.75 3.75 3.75 3.75 3.50 3.25
ESTR 1.91 2.97 3.75 3.77 3.80 3.82 3.85 3.60 3.35
3M Euribor 2.48 3.38 3.75 3.75 3.75 3.75 3.63 3.38 3.15
Germany 2Y 2.65 2.55 2.65 2.80 3.10 2.95 2.90 2.90 2.85
5Y 2.33 2.30 2.45 2.55 2.60 2.40 2.30 2.30 2.25
10Y 2.31 2.35 2.70 2.60 2.60 2.40 2.35 2.45 2.40
30Y 2.25 2.25 2.60 2.45 2.45 2.25 2.30 2.40 2.40
France 2Y 2.77 2.55 2.70 2.90 3.20 3.00 2.95 2.95 2.90
5Y 2.63 2.64 2.93 3.04 3.11 2.86 2.64 2.64 2.49
10Y 2.77 2.85 3.35 3.20 3.25 3.00 2.90 3.00 2.95
30Y 3.03 3.05 3.65 3.50 3.60 3.30 3.25 3.30 3.30
Italy 2Y 3.13 3.15 3.55 3.60 4.00 3.85 3.65 3.50 3.35
5Y 3.64 3.66 4.19 4.18 4.33 4.05 3.69 3.54 3.41
10Y 4.17 4.45 5.05 4.80 4.90 4.50 4.40 4.50 4.40
30Y 4.34 4.30 4.75 4.65 4.75 4.45 4.45 4.55 4.60
Spain 2Y 2.90 2.80 3.00 3.10 3.45 3.25 3.20 3.15 3.10
5Y 2.95 2.90 3.15 3.20 3.30 3.03 2.86 2.83 2.78
10Y 3.30 3.40 3.85 3.70 3.75 3.45 3.35 3.45 3.40
30Y 3.74 3.80 4.30 4.15 4.20 3.85 3.85 3.90 3.90
Ireland 10Y 2.77 2.80 3.30 3.10 3.15 2.90 2.80 2.85 2.80
Portugal 10Y 3.21 3.35 3.80 3.65 3.70 3.40 3.30 3.40 3.35
Greece 10Y 4.30 4.70 5.20 5.15 5.25 4.85 4.70 4.75 4.60
EUR IRS* 2Y 3.30 3.30 3.45 3.55 3.70 3.55 3.50 3.40 3.35
5Y 2.96 2.95 3.20 3.15 3.10 2.90 2.75 2.70 2.60
10Y 2.90 3.00 3.40 3.20 3.15 2.95 2.80 2.85 2.80
30Y 2.38 2.45 2.85 2.60 2.55 2.40 2.50 2.65 2.70
Current Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24
USD FF Target 4.50 5.25 5.25 5.25 5.25 5.25 5.25 4.75 4.25
FF Eff 4.32 5.08 5.08 5.08 5.08 5.08 5.08 4.58 4.08
SOFR 4.30 5.05 5.05 5.05 5.05 5.05 5.05 4.55 4.05
UST 2Y 4.24 5.15 5.05 4.95 4.85 4.50 4.15 3.90 3.75
5Y 3.67 4.45 4.35 4.25 4.20 3.85 3.60 3.55 3.35
10Y 3.56 4.10 4.15 4.10 4.05 3.90 3.65 3.80 3.95
30Y 3.67 4.05 4.15 4.10 4.15 4.05 3.90 4.15 4.35
USD IRS** 2Y 4.26 5.18 5.10 4.99 4.88 4.53 4.18 3.93 3.78
5Y 3.46 4.25 4.17 4.06 4.00 3.65 3.40 3.35 3.15
10Y 3.26 3.80 3.87 3.81 3.75 3.60 3.35 3.50 3.65
30Y 3.01 3.34 3.46 3.40 3.44 3.34 3.19 3.44 3.64
* EUR swap vs 6M Euribor, ** USD swap vs SOFR.
Source: Crédit Agricole CIB
19
Appendix 6: YTD closed trade tracking

Trade ideas closed since the beginning of the year
Carry-
Opening Currency Trade Idea Entry Current P&L Target Stop Closing Author
Roll
12/04/2022 EUR Buy 9Minto1Y vs selling 9Minto5Y ATMF payers -1bp 155.5 0 154.5 n/a n/a 16/01/2023 Bert Lourenco
All levels are in bp except if mentioned otherwise.
Source: Crédit Agricole CIB, Bloomberg
Appendix 7: Recent rates publications

* NEW * Interest Rates Focus, Recent developments of EUR swap curve dynamics, 31 January
USD Rates Chart Pack, Relative value models and analysis, 30 January
Supply and Cash Flow Monitors, Issuance for 30 January-5 February 2023, 30 January
Interest Rates Focus, Fed to downshift again, but no pause yet, 27 January
Interest Rates Weekly, It’s the (political) economy, stupid, 24 January
USD Rates Chart Pack – Relative value models and analysis, 24 January
Interest Rates Focus, Fed forecast update, 23 January
Supply and Cash Flow Monitors – Issuance for 23-29 January 2023, 23 January
Interest Rates Weekly, Time to just pay it,18 January
Interest Rates Trade Idea, Carry positive structures in USD rates,17 January
Interest Rates Trade Idea, Closing: conditional EUR 1-5Y bear flattener, 16 January
Interest Rates Weekly, Always expect the unexpected, 10 January
Interest Rates Focus, Mixed jobs report keeps rates market on edge, 06 January
Interest Rates Focus, European sovereign credit ratings 2023 calendar, 02 January
Interest Rates Focus, EGB 2023 issuance outlook, 23 December
20
Global Markets Research contact details

v. 06/09/18 Jean-François Paren Head of Global Markets Research +33 1 41 89 33 95
Asia (Hong Kong, Singapore & Tokyo) Europe (London & Paris) Americas (New York)
Takuji Aida Arata Oto Louis Harreau Valentin Giust Nicholas Van Ness **
Chief Economist Japan Japan Market Economist Head of Developed Markets Global Macro Strategist US Economist
Strategy
+81 3 4580 5360 +81 3 4580 5337 Macro & Strategy +33 1 41 89 30 01 +1 212 261 7601
Macro
+33 1 41 89 98 95
Bert Lourenco Marine Mazet Alex Li **

Head of Rates Research Interest Rates Strategist Head of US Rates Strategy
+44 (0) 20 7214 6474 +33 1 41 89 36 23 +1 212 261 3950
Interest
Guillaume Martin
Rates
Interest Rates Strategist

+33 1 41 89 37 66
Xiaojia Zhi Jeffrey Zhang Sébastien Barbé Olga Yangol **

Chief China Economist Emerging Market Strategist Head of Emerging Market Research & Strategy Head of Emerging Market
Emerging Markets
Head of Research, Asia +852 2826 5749 +33 1 41 89 15 97 Research & Strategy,
ex-Japan Americas
+852 2826 5725 +1 212 261 3953
Yeon Jin Kim
Eddie Cheung CFA
Emerging Market Analyst
Senior Emerging Market +852 2826 5756
Strategist
+852 2826 1553
David Forrester Valentin Marinov Alexandre Dolci

Senior FX Strategist Head of G10 FX Research & FX Strategist
Exchange
+65 6439 9826 Strategy +44 20 7214 5064

Foreign
+44 20 7214 5289
Alexandre Borel
Research
Data Scientist
+33 1 57 87 34 27
Quant
** employee(s) of Crédit Agricole Securities (USA), Inc.

Certification
The views expressed in this report accurately reflect the personal views of the undersigned analyst(s). In addition, the undersigned analyst(s) has not and will not receive
any compensation for providing a specific recommendation or view in this report.
Bert Lourenco, Alex Li, Marine Mazet, Guillaume Martin
Important: Please note that in the United States, this fixed income research report is considered to be fixed income commentary and not fixed income research.
Notwithstanding this, the Crédit Agricole CIB Research Disclaimer that can be found at the end of this report applies to this report in the United States as if references to
research report were to fixed income commentary. Products and services are provided in the United States through Crédit Agricole Securities (USA), Inc.
Foreign exchange disclosure statement to clients of CACIB
https://www.ca-cib.com/sites/default/files/2017-02/2016-05-04-cacib-fx-disclosure-april-2016_0.pdf
Additional recommendation obligations – available from analyst(s) upon request:
 A list of all the recommendation changes on any financial instrument or issuer disseminated within the last 12 months.
 Where Crédit Agricole CIB is a market-maker or liquidity provider in the financial instruments of the issuer.
Valuation and methodology
Based on their expertise, each analyst defines the information that is relevant to produce their recommendations. This information may change over time. All
recommendations focus on FX instruments, either G10 FX spot or G10 FX derivative markets. Crédit Agricole CIB is currently disclosing investment recommendations
either at the issuer level, at the financial instrument level or at the country level. Credit Agricole CIB investment recommendations are based on a risk and reward analysis:
 Risk analysis may be conducted at the financial instruments level. Among the information normally used to define the risks, are (1) publications produced by other
research teams within Crédit Agricole CIB (Economics, FX, Credit Research, Emerging Markets), (2) country analysis, (3) regulatory filings; (4) regular discussions
with relevant stakeholders such as experts or regulatory bodies or (5) any other publicly available sources.
 Reward analysis is usually based on valuation models. Valuation may be based on proprietary models or external models provided by sources considered as reliable
(eg, Bloomberg). Among other factors, valuation models may be based on relative value models, quantitative models, cross-asset models.
 Investment recommendations may also be based on other technical aspects, including positioning flows and observing the market and underlying movements in
particular instruments or issuers. This analysis will take into account key criteria such as market liquidity of the financial instrument at the time of production of the
recommendation.
Any change in recommendation is disclosed via specific documents indicating both the new and the previous recommendation and the rationale backing the change.
Credit Agricole CIB expressly disclaims any responsibility for: (i) the accuracy of the models or estimates used in deriving the recommendations; (ii) any errors or omissions
in computing or disseminating the valuations: and (iii) any uses to which the recommendations are put. Any valuation provided may be different from the valuation of the
same product that Credit Agricole CIB may use for its own purposes, including those prepared in its own financial records.
MiFID II contact details

Andrew Taylor Please send your questions on
MiFID II Research contact MiFID II to:
andrew.taylor@ca-cib.com research.mifid2@ca-cib.com
21
Disclaimer
© 2023, CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK All rights reserved.
This research report or summary has been prepared by Crédit Agricole Corporate and Investment Bank or one of its affiliates (collectively “Crédit Agricole CIB”)
from information believed to be reliable. Such information has not been independently verified and no guarantee, representation or warranty, express or implied,
is made as to its accuracy, completeness or correctness.
This report is provided for information purposes only. Nothing in this report should be considered to constitute investment, legal, accounting or taxation advice
and you are advised to contact independent advisors in order to evaluate this report. It is not intended, and should not be considered, as an offer, invitation,
solicitation or personal recommendation to buy, subscribe for or sell any of the financial instruments described herein, nor is it intended to form the basis for
any credit, advice, personal recommendation or other evaluation with respect to such financial instruments and is intended for use only by those professional
investors to whom it is made available by Crédit Agricole CIB. Crédit Agricole CIB does not act in a fiduciary capacity to you in respect of this report.
Crédit Agricole CIB may at any time stop producing or updating this report. Not all strategies are appropriate at all times. Past performance is not necessarily
a guide to future performance. The price, value of and income from any of the financial instruments mentioned in this report can fall as well as rise and you may
make losses if you invest in them. Independent advice should be sought. In any case, investors are invited to make their own independent decision as to
whether a financial instrument or whether investment in the financial instruments described herein is proper, suitable or appropriate based on their own
judgement and upon the advice of any relevant advisors they have consulted. Crédit Agricole CIB has not taken any steps to ensure that any financial
instruments referred to in this report are suitable for any investor. Crédit Agricole CIB will not treat recipients of this report as its customers by virtue of their
receiving this report.
Crédit Agricole CIB, its directors, officers and employees may effect transactions (whether long or short) in the financial instruments described herein for their
own accounts or for the account of others, may have positions relating to other financial instruments of the issuer thereof, or any of its affiliates, or may perform
or seek to perform securities, investment banking or other services for such issuer or its affiliates. Crédit Agricole CIB may have issued, and may in the future
issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Crédit Agricole CIB is under no
obligation to ensure that such other reports are brought to the attention of any recipient of this report. Crédit Agricole CIB has established a “Policy for Managing
Conflicts of Interest in relation to Investment Research” which is available upon request. A summary of this Policy is published on the Crédit Agricole CIB
website. This Policy applies to its investment research activity.

None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without the prior
express written permission of Crédit Agricole CIB. To the extent permitted by applicable securities laws and regulations, Crédit Agricole CIB accepts no liability
whatsoever for any direct or consequential loss arising from the use of this document or its contents.
France: Crédit Agricole Corporate and Investment Bank is authorised by the Autorité de Contrôle Prudentiel et de Résolution (“ACPR”) and supervised by the
European Central Bank (“ECB”), the ACPR and the Autorité des Marchés Financiers (“AMF”). Crédit Agricole Corporate and Investment Bank is incorporated
in France with limited liability. Registered office: 12, Place des Etats-Unis, CS 70052, 92 547 Montrouge Cedex (France). Companies Register: SIREN 304 187
701 with Registre du Commerce et des Sociétés de Nanterre. United Kingdom: Crédit Agricole CIB is authorised and regulated by the Autorité de Contrôle
Prudentiel et de Résolution (the “ACPR”) and supervised by the European Central Bank (the “ECB”), the ACPR and the Autorité des Marchés Financiers (the
“AMF”) in France. Crédit Agricole CIB London is authorised by the Prudential Regulation Authority and subject to regulation by the Financial Conduct Authority
and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the FCA and the PRA are available from Crédit
Agricole CIB London on request. Crédit Agricole Corporate and Investment Bank is a public limited company (“société anonyme”) under French law,
incorporated in France under SIREN number 304187701 at the Nanterre Trade and Companies Registry, with limited liability and its head office address at 12,
Place des États-Unis, CS 70052, 92547 Montrouge Cedex, France. It is registered in England and Wales as an overseas company at Companies House under
company number FC008194, with a UK establishment at Broadwalk House, 5 Appold Street, London, EC2A 2DA, United Kingdom (UK establishment number
BR001975). United States of America: This research report is distributed solely to persons who qualify as “Major U.S. Institutional Investors” as defined in
Rule 15a-6 under the Securities and Exchange Act of 1934 and who deal with Crédit Agricole Corporate and Investment Bank. This report does not carry all of
the independence and disclosure standards of a retail debt research report. Recipients of this research in the United States wishing to effect a transaction in
any security mentioned herein should do so by contacting Crédit Agricole Securities (USA), Inc. (a broker-dealer registered with the Securities and Exchange
Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”)). The delivery of this research report to any person in the United States shall
not be deemed a recommendation of Crédit Agricole Securities (USA), Inc. to effect any transactions in the securities discussed herein or an endorsement of
any opinion expressed herein. This report shall not be re-distributed in the United States without the consent of Crédit Agricole Securities (USA), Inc. Italy: This
research report can only be distributed to, and circulated among, professional investors (operatori qualificati), as defined by the relevant Italian securities
legislation. Spain: Distributed by Crédit Agricole Corporate and Investment Bank, Madrid branch and may only be distributed to institutional investors (as
defined in article 7.1 of Royal Decree 291/1992 on Issues and Public Offers of Securities) and cannot be distributed to other investors that do not fall within the
category of institutional investors. Hong Kong: Distributed by Crédit Agricole Corporate and Investment Bank, Hong Kong branch. This research report can
only be distributed to professional investors within the meaning of the Securities and Futures Ordinance (Cap.571) and any rule made there under. Japan:
Distributed by Crédit Agricole Securities Asia B.V. which is registered for financial instruments business in Japan pursuant to the Financial Instruments and
Exchange Act (Act No. 25 of 1948), and is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any
of the financial instruments described herein. This report is not intended, and should not be considered, as advice on investments in securities which is subject
to the Financial Instruments and Exchange Act (Act No. 25 of 1948). Luxembourg: Distributed by Crédit Agricole Corporate and Investment Bank, Luxembourg
branch. It is only intended for circulation and/or distribution to institutional investors and investments mentioned in this report will not be available to the public
but only to institutional investors. Singapore: Distributed by Crédit Agricole Corporate and Investment Bank, Singapore branch. It is not intended for distribution
to any persons other than accredited investors, as defined in the Securities and Futures Act (Chapter 289 of Singapore), and persons whose business involves
the acquisition or disposal of, or the holding of capital markets products (as defined in the Securities and Futures Act (Chapter 289 of Singapore)). Switzerland:
Distributed by Crédit Agricole (Suisse) S.A. This report is not subject to the SBA Directive of January 24, 2003 as they are produced by a non-Swiss entity.
Germany: Distributed by Crédit Agricole Corporate and Investment Bank, Frankfurt branch and may only be distributed to institutional investors. Australia:
Distributed to wholesale investors only. This research, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian
Corporations Act.
Benchmarks are the subject of recent and on-going reform, which include changes in methodology, discontinuation and/or replacement. Where implemented,
reforms may cause benchmarks to perform differently than in the past or have other consequences which may have a material adverse effect on products and
services provided by Crédit Agricole CIB currently and/or in the future. You should therefore consult your own independent advisers and make your own
assessment about the potential risks imposed by benchmark reforms, when making any investment decision with respect to a product or service linked to or
referencing a benchmark. Reforms include (i) the expectation that LIBOR will cease after year-end 2021 and be replaced by Alternative Reference Rates on
each currency (e.g. USD/GBP), impacting LIBOR and other benchmarks which are pegged to it and (ii) EONIA will stop being published on 3 January 2022
and be replaced by €STR.
THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION
THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT,
YOU AGREE TO BE BOUND BY THE FOREGOING. 16/08/21
22

CACIB - Interest Rates Weekly 20230131

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CACIB - Interest Rates Weekly 20230131

Uploaded by

Copyright:

Available Formats

Interest Rates Weekly 16:46 CET

We suggest staying short USD and EUR duration.

pent up demand so economic slack remains razor thin.

Fig 1. Forward terminal rates relative to our forecasts (%)

Source: Credit Agricole CIB, Bloomberg

Views and recommendations summary

* 5-10Y IRS, ** 1Yinto10, *** DBR/UST - swap, **** 10Y DBR-BTP

Nevertheless, we expect modest EGB widening pressure, so long as governments

Fig 3. Open trades

Source: Crédit Agricole CIB, Bloomberg

EUR: keep it simple

Fig 4. Lending standards have scope to tighten a lot more (%)

Source: Credit Agricole CIB, Bloomberg

Source: CME, Bloomberg Source: Crédit Agricole CIB

YTD issuance and February outlook

Jan-16 Jan-18 Jan-20 Jan-22

Term premium and QT

Source: Crédit Agricole CIB Source: Crédit Agricole CIB

USD: FOMC under the spotlight

Fig 12. Only two Fed surprises during tightening cycles

Source: Bloomberg, Crédit Agricole CIB

Fig 13. Only two Fed surprises during tightening cycles

Source: Bloomberg, Crédit Agricole CIB

Alternatively, we have examined one-day changes in Fed funds futures front

Fig 14. Front-end Treasuries have room to rise in yields

Source: Bloomberg, Crédit Agricole CIB

February refunding announcement preview

-0.5 6m Bill-OIS Spread

Focus: EUR curve PCA shifts

The return of inflation, a real game changer?

Source: Crédit Agricole CIB Source: Crédit Agricole CIB

The curve remains mostly directional

The curvature points have decisively changed

Fig 19. PC1 loadings, PCA on rolling 1M window

Source: Crédit Agricole CIB

Fig 20. PC2 loadings, PCA on rolling 1M window

Unlearning some of the lessons learnt in the previous cycle

Source: Crédit Agricole CIB, CME Source: Crédit Agricole CIB

Appendix 1: EUR issuance and EGB cash flows

Date Country Bond Amount in EURbn Event

02-Feb Spain SPGB 3.45 07/30/43 Auction

Please check our EGB issuance spreadsheet for more details.

Fig 29. Flows for the week of 30/01/2023

Fig 30. Flows for the week of 06/02/2023

Fig 31. Flows for the week of 13/02/2023

Fig 32. Flows for the week of 20/02/2023

Fig 33. Total flows for the upcoming four weeks

Appendix 2: USD issuance and UST cash flows

Date Bond/Notes Amount in USDbn Tap/New

Fig 40. Flows for the week of 30/01/2023

Fig 41. Flows for the week of 06/02/2023

Fig 42. Flows for the week of 13/02/2023

Fig 43. Flows for the week of 20/02/2023

Fig 44. Total flows for the upcoming four weeks

Source all charts: DMOs, Crédit Agricole CIB

Appendix 3: EUR Dashboard

EUR Swap* (%) EUR Swap Curve (bp)

3.00 2-10Y -40 -57 -75

EUR Swaption Normal Implied (bp) EUR ZC Inflation (%)

Source: Bloomberg, Crédit Agricole CIB

Appendix 4: USD Dashboard

USD Swap* (%) USD Swap Curve (bp)

5-10Y -19 1 -78

* 5-10Y IRS, 1Yinto10, * DBR/UST - swap, **** 10Y DBR-BTP