EUR Swaps: €STR activity after big bang switch

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€STR activity after the big bang switch is discussed

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  • €STR activity after big bang switch

  • Pay €STR 2s/5s - SocGen

  • New issues


    €STR activity after big bang switch

    A slight pick-up in €STR swap activity has occurred over the past couple of sessions since the switchover to CCP discounting. “There were a few more trades yesterday including some longer-dated pieces,” reported one dealer today. However, he noted the concentration of flow remains in shorter-dated pieces, such as the EUR 2y sector.


    The failure of €STR bond issuance to develop is one factor that slowed down the development of the €STR swap market, felt one dealer. “There was a spurt of activity when the benchmark first launched (in October 2019) but growth in the market has been pretty slow,” one dealer observed.


    Still, with regulators pressing hard for the switchover to the new benchmark rate, one dealer agreed it was a matter of time before the number of €STR trades begins to eclipse EONIA trades in the market.


    In the market today the Bund future has so far traded a tight range, last up 8 ticks at 176.89, after a sharp 60-odd tick rally yesterday.


    The euro swap curve continues to show a bias towards flattening, although the pace of flattening has so far been pretty muted. Last prices were 2s/5s at 2.4bps (-0.4bp), 5s/10s at 15.3bps (-0.2bp) and 10s/30s at 15.9bps (-0.4bp).


    New issuance has showed a slight revival with KfW tapping €1bn 2034s today, but overall the number of issuers active remains in the single digits.


    Swap spreads have nudged wider for a second session with last prices Schatz at 28.5bps (+0.9bp), Bobl at 32.3bps (+0.6bp), Bund 29.9bps (+0.1bp) and Buxl at 11.3bps (+0.3bp).


    Pay €STR 2s/5s - SocGen

    In latest research, Societe Generale switches its pay EONIA 2s/5s position to paying €STR 2s/5s amid expectations that volumes in €STR will increase following this week’s discounting switchover. The bank writes:



    • “Monday 27 July is a key transition milestone in EUR rates, as clearing houses will switch their discounting from Eonia to €STR flat. Renegotiations on bilateral CSA will follow. This is an important step in the transition from Eonia to €STR, and it is expected that volumes of €STR swaps will take off from now. EONIA will be discontinued after the end of 2021.


    • “Hence, as an attractive bearish trade, we have already started recommending paying the €STR 2s/5s spread rather than Eonia 2s/5s. The trade is attractive again, with €STR 2s/5s below 2bps.”



    New issues

  • KfW is tapping €1bn of its 0.05% 2034 around swaps-3bps through Barclays, DB and GS (B&D).


  • Prosus NV is selling EUR benchmark 8y and 12y around swaps+245bps and +280bps through BofA, BNPP (B&D), Citi and MS.


  • Baden-Wuerttemberg is pricing €1bn 7y at swaps-5bps through Commerzbank, JPM, LBBW, NatWest, NordLB and UniCredit (B&D).


  • Phoenix Pharma SE is working on the sale of 5y bonds through Commerzbank, CA, ING and UniCredit.