Euro Area Government Issuance 10Q2 Update

Euro Area Government Issuance 10Q2 Update

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• After Q1 issuance came in line with expectations, our 2010 conventional issuance forecasts are largely unchanged since our last update. We expect around €835bn from the largest 11 Euro area countries.

• We revise down our deficit forecasts for most Euro area countries as the Greek crisis makes consolidation efforts more likely, but the drop in issuance will likely be absorbed by less supply of non-conventional products.

• We expect Q2 issuance to drop €25bn to around €235bn, with a skew to the short end of the curve. However, supply net of redemptions will be broadly in line with Q1.

• The issuance cycle has been less pronounced in Q1 2010, with only marginal cheapening into auctions and a 2bp richening in the subsequent 3 days. We believe that lower volatility around Greece should make auction cycles more similar to 2009 in the remainder of the year.

ENDS

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