Risk-off amid recession fears; 2023 Bund supply
A global risk-off move amid mounting recession fears has driven the Bund future 1.5 points higher today while the EuroStoxx has sunk by -2.3%. Elsewhere, latest inflation data saw France print in-line with the Bloomberg consensus at 6.5%yoy.
In the front-end, Euribors have surged by as much as 25bps today with Sep23 last +22.5bps at 98.145, taking it back towards the top of this month's 120bps range.
Across the euro swap curve the direction is steeper for a second session with 2s/5s at 44.5bps (+0.25bp), 5s/10s at 38.75bps (+3bps) and 10s/30s at -19.25bps (+3.25bps).
Bund asset swap spreads continue to push higher, supported by the risk-off backdrop and drought of new issuance activity with no deals set to price today.
Last prices were Schatz at 72.2bps (+2.6bp), Bobl at 77.3bps (+2.5bp), 82.7bps (+2bp) and 50.9bps (+2bp).
As for sovereign supply, strategists at Commerzbank have today given the first estimates for 2023 Bund supply. The bank writes:
- “Regarding supply, FinMin Lindner is targeting net borrowing of €17.2bn in 2023. This is more than double the amount contained in previous fiscal plans - but it should not be confused with net issuance. Here, the key driver of Bund net supply will be the amount of expenditures from the extra assets (military/climate fund). Recall that these have been already booked for this year, but hardly any money has been spent so far as confirmed by the unchanged Q3 Bund calendar. Eventually the expenditures will become funding relevant though.
- “The DFA's huge cash balance and own holdings will provide plenty of flexibility to fund these expenditures away from Bunds. In addition, the DFA will probably be keen to add weight to Lindner's overriding fiscal message of "return to normal" and extend the downtrend in gross Bund supply from the Covid-driven peak.
- “In sum, we expect gross Bund supply of about €200bn in 2023 but given the high uncertainty volumes can easily deviate to either side by €20bn. Net BuBill issuance should be close to zero.”