巴黎银行-欧洲-宏观策略-欧元通胀：看跌支撑BEI扁平化-20190405-8页.pdf

|FOCUS 04/04/2019 1 Reiterate:5y5y/15y15y HICPxT flattener.Entry:53bp.Target:35bp.Stop:65bp.Carry:flat.Current:53bp.Close:Long OATei-22 IOTA.P&L:+6bp.TRADE IDEA FOCUS|EUROZONE 5 April 2019 EUR inflation:Swing in carry supports BEI flatteners KEY MESSAGES The latest eurozone inflation data was a bit alarming,with part of the softness seemingly driven by components that are typically not sensitive to the timing of Easter.The data is likely to remain distorted in the months ahead.Core inflation is expected to revert towards its underlying trend later in the summer.But if it doesnt,we would expect markets to worry more about the ECBs ability to get inflation back to target.In either case,the EUR inflation breakeven curve is likely to flatten.Currently,large positive inflation breakeven carry presents an opportunity to enter flatteners near(or at)the steepest levels on a forward basis.Retreat in inflation data-is Easter alone to blame?Eurozone headline and core inflation came in at 1.41%and 0.78%y/y,respectively in March,down from 1.5%and 1.0%in February.While the Easter effect was likely to blame for a significant amount of the slowdown,there may also have been some underlying moderation,with part of the softness in some member states seemingly driven by components typically not sensitive to the timing of Easter.While the former should reverse soon,the latter development is alarming given already stubbornly low core inflation.Inflation uncertainty to persist until the summer The Easter effect is likely to continue to distort the inflation data over the coming months,with our economists expecting core inflation to revert towards its underlying trend only in the summer.Meanwhile,despite the ECB appearing to have moved to an easing bias amid the ongoing growth slowdown,it might still be limited on easing options and less willing to act before the next president takes office and ster.adding to markets inflation anxiety and likelypressuring inflation breakevens to flatten:ECB President Draghi has attributed the recent fall in market-based measures of inflation to a drop in inflation risk premium.In our view,it is more likely that the widening gap between the market-and survey-based measures of future inflation is down due to inertia in survey forecasts.Indeed,the results of ECBs Q1 2019 Survey of Professional Forecasters showed average HICP inflation expectations of 1.5%,1.6%,1.7%and 1.8%for 2019,2020,2021 and for the longer term(2023),respectively a downward revision of 0.2pp,0.1pp and 0.1pp for 2019,2020 and the longer term,respectively,versus the previous edition(Fig.2).We continue to believe that if the markets perception of the ECBs inability to reach inflation target gains further traction,the longer-end inflation breakeven forwards are likely to reprice lower,especially if it were to remain above the central bank target.Please refer to important information and MAR disclosures at the end of this report Fig.1:EUR inflation breakeven curves in swap vs cash Sources:BNP Paribas.Forecasts are provisional and subject to change.G10 INTEREST RATES Agne Stengeryte,Europe Rates Strategist|BNP Paribas London Branch 4550556065-5051015Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19Jan-20BUNDei-26/-30 BEI curve5y5y/15y15y inflation swap curve(RHS)(bp)(bp)|FOCUS 04/04/2019 2 A revival of inflation would also flatten the curve:Alternatively,were our inflation forecasts to materialize,5y5y is likely to rebound,flattening the curve.A return of 5y5y inflation swaps back towards the upper end of QE trading range would suggest some 10bp flattening in 5y5y/15y15y(Fig.3).The same historical relationship suggests only limited steepening even if the 5y5y retreats further(1.25%is the low reached in 2016).Mind the positive carry in EUR breakevens,Inflation carry in Europe is due to the switch from negative in Q1 to a large positive in Q2(see Fig.4-keep in mind this is also the case in the US,where we recently suggested buying 10y TIPS breakevens)and inflation breakeven curve flatteners will earn positive carry over the coming two to three months.Therefore,cash inflation breakeven curves are near,or at,the steepest levels on a forward basis(Fig.5).an opportunity to enter breakeven flatteners near(or at)the steepest levels on a forward basis:With cash inflation breakeven curves pricing in their forwards pretty efficiently thus far(as judged versus the nominal yield,oil price and the trade-weighted EUR,adjusted for the carry profile),we continue to hold 5y5y/15y15y inflation breakeven curve flatteners.For investors wishing to enter the trade now,tactically cash flatteners may be a better expression given the large positive carry and subsequently very steep inflation breakeven curve on a forward basis.For example,positive carry on BUNDei-23/-30 breakeven curve will amount to+6.8/+21.2/+26.8bp cumulatively over the next one,two and three months,respectively(Fig.1).While not a major factor for curve flattening,keep in mind Aprils index extension:EUR linkers including Italy and Spain 1y+index will extend by+0.31 years at the end of April,due to BUNDei-20 dropping out of the index.OATei-20 will drop out in July.Long OATei-22 IOTA trade closed for+7bp P&L:We are no longer as bullish on EUR breakevens on an outright basis,given the slightly trimmed eurozone inflation forecasts,measured growth prospects and oil prices having rebounded nearly 40%in EUR terms since January(although our commodity strategy team expects Brent to average USD69 in Q2 and USD73 in Q3).We have,therefore,closed our long OATei-22 IOTA trade for+7bp P&L.G10 INTEREST RATES Fig.2:Distribution of HICP point expectations in the longer term Fig.4:Carry per month on 5y global breakevens Sources:ECB.The SPF asks respondents to report their point forecasts and to separately assign probabilities to different ranges of outcomes.This chart shows the average probabilities they assigned to inflation outcomes in the longer term Sources:BNP Paribas.Forecasts are provisional and subject to change.Agne Stengeryte,Europe Rates Strategist|BNP Paribas London Branch Fig.3:EUR inflation swap curve vs level Fig.5:Inflation breakeven curves are steep on a forward basis Sources:Macrobond,BNP Paribas.Sources:BNP Paribas.Forecasts are provisional and subject to change.-30-20-10010203040BUNDei Apr-23OATi Jul-23UKTi Nov-22TIPS Jul-23Carry(bp)Carry in Apr(remaining)Carry in MayCarry in JunCarry in JulCarry in AugCarry in SepCarry in OctEUR inflation:Swing in carry supports BEI flatteners-10010203040Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19BUNDei-26/-30 BEIBUNDei-23/-30 BEIbp Legal Notice This document has been written by our Strategist and Economist teams within the BNP Paribas group of companies(collectively“BNPP”);it does not purport to be an exhaustive analysis,and may be subject to conflicts of interest resulting from their interaction with sales and trading which could affect the objectivity of this report.This document is non-independent research for the 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