### GERMAN SWAP SPREADS COULD MOVE EVEN........>

EGBS: ### GERMAN SWAP SPREADS COULD MOVE EVEN FURTHER

- POV. Many factors have contributed to the German debt underperformance versus

EUR swaps: A cut in ECB PSPP and the announcement of higher maturity issuance by

the German debt office certainly squeeze the swap spread from both directions.

Corporate (rarely sovereign) debt issuance might prompt some receiving as the

issuer chases a floating rate. However, the flat curve might limit this effect.

- What interests us is the slight rise in the 3m eonia-Euribor spread in the

past month. A big tightening in money market spreads occurred in early December

because it appeared that one Greek bank was lending to another, pushing up

eonia. The use of the ECB's marginal lending facility is down approx. E100mln to

just E54mln this year suggesting that Greek bank funding pressures are easing.

- 2018 may see a flow of money to Athens and because eonia is calculated upon a

thin base, it is vulnerable to an upward spike/rise if the interbank market

resumes in Greece. The RX invoice spread is 42.5bp and the narrowest for six

months but is influenced by the Eonia-Euribor spread. Alongside ECB APP

declining influence, German swap spreads may narrow more.