European Bond Buyers Await a Second Wave of Debt

(Bloomberg) --

As the tumultuous first half of 2020 draws to a close, European and U.K. bond markets are getting ready for the next wave of the debt tsunami that may define the year for investors.

On Monday, Germany and the U.K. will update their issuance plans for the next quarter, as part of an ongoing borrowing binge to fund fiscal stimulus to counter the economic damage from the coronavirus.

Commerzbank AG expects at least 75 billion euros ($84 billion) of bunds to be sold in the three months starting July 1. A Bloomberg poll of primary dealers estimates U.K. issuance in the same period at 132 billion pounds ($163 billion). Monday’s announcements could fuel volatility in both markets, which were poised to see the smallest monthly moves in benchmark yields since 2017.

In the coming week, France is set to lead euro-area bond sales with a target to raise 11.75 billion euros, followed by Italy and Germany. Commerzbank sees Spain setting a size of 6 billion euros for its planned offering. Against this avalanche of issuance, Germany is due to pay 22 billion euros in redemptions and over 7 billion euros in coupons.

The U.K. Debt Management Office will sell almost 11 billion pounds of securities across four auctions next week, while the pace of the Bank of England’s bond buybacks will remain steady at 1.151 billion pounds per maturity bucket across six operations.

Data in Focus

Among the coming week’s data releases, the euro-area’s flash estimate for June consumer prices may garner some attention on Tuesday, having taken a backseat this month to the ECB’s 600-billion-euro bond-buying boost and 1.3-trillion-euro cheap-loan bonanza. The median estimate in a Bloomberg survey is for a small rise from May, which had the lowest level since 2016.

The latest inflation report comes after market-based price expectations -- as measured by five-year forward, five-year inflation swaps -- climbed more than 40 basis points from the record low of 0.67% set in March.

Alongside Germany and the U.K., the bloc will publish final manufacturing PMI figures for June on Wednesday and equivalent services data on Friday.

• Germany will release state and national inflation readings for June on Monday as well as June unemployment numbers on Wednesday
• Aside from the PMI data, the U.K. will also publish final first-quarter gross-domestic-report numbers on Tuesday
• The pace of ECB policy maker speeches is set to slow next week, providing investors with fewer clues on the outlook for monetary policy with Isabel Schnabel and Klaas Knot speaking
  • BOE speakers have a busy week however, with Governor Andrew Bailey, Gertjan Vlieghe, Jonathan Cunliffe and Jonathan Haskel all making an appearance. Investors will be keen to hear their views in light of Monday’s new DMO funding remit
• There are no euro-area sovereign ratings reviews scheduled for the coming week

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