Europe bonds await next supply wave amid fiscal-shock anxiety

London

EURO-AREA bond markets will face a wave of issuance from the region's top four borrowers this week, even as investor anxiety simmers over an expected tsunami of supply this year to fund massive stimulus plans.

Germany, France, Spain and Italy are scheduled to auction debt totalling 25 billion euros (S$40 billion) during March 30-April 3, according to an estimate by strategists at Commerzbank AG. The UK will offer a combined £5 billion (S$8.9 billion) of 2028 and 2041 gilts this week. The Italian Treasury is due to pay 15 billion euros in redemptions and another 500 million euros in coupons.

The auctions come as investors estimate expected borrowings that would fund more than 200 billion euros of fiscal spending announced by Germany, France, Italy and Spain to combat the economic shock from the coronavirus. Still, soothing concerns about a supply surge is the recently launched European Central Bank's new 750 billion euro emergency debt-buying programme.

The ECB is also supporting the financial system by pumping in cash through special money market transactions. Its weekly and three-monthly operations have boosted excess liquidity - a measure of money available in the system over and above banks' needs - by the most since July 2018 towards a record.

The central bank's purchases and liquidity injections helped drive euro-area bond yields down last week, with those on benchmark French debt on course for the biggest weekly drop in four years. The rally was also fuelled by money market expectations that the institution could lower its policy rate by a further five basis points by year-end.

Inflation trends have somewhat been overshadowed by the ECB bond programme with consumer price expectations - as measured by five-year forward, five-year inflation swaps - rising almost 30 basis points from last week's record low of 0.67 per cent. Still, the euro-area's flash estimate for March may garner some attention on Tuesday.

Alongside Germany and the UK, the bloc will publish final manufacturing PMI figures on Wednesday and final service numbers on Friday.

Germany will also release state and national inflation data on Monday as well as February retail sales numbers on Wednesday. BLOOMBERG