Implieds jump as yields surge
Expect normalisation in 2023-24 - JP Morgan
New structured issues: CMS, Callables
Implieds jump higher as yields surge
Euro rates sold off heavily today with the 10y Bund yield surging 15bps up to 1.95% amid global hawkish momentum ahead of the FOMC and BOE policy meetings later this week. Earlier, Sweden's Riksbank hiked rates by 100bp while traders said a 75bp hike was expected, see here.
In vol, euro gamma implieds jumped by 6-10 normals, led by the 1m expiries. "The delivered had not been looking great recently, but today showed we can still get decent moves," said one trader.
Still, he pointed out that several pieces are merely re-tracing what was lost during the previous 2-3 sessions, "1m10y is around 285bps and back to where we were last week."
Elsewhere, strategists at JP Morgan argue implieds are likely to stay elevated over the near term with vol-of-vol staying high. Ahead, it argues that “large-scale normalisation of the EUR volatility is primarily a 2023/2024 dynamic”. The bank writes:
- “The ECB is on a war footing to combat inflation and is expected to push policy rates higher still. Nevertheless, we expect inflation to still rise over the coming 3-4 month before decelerating sharply over the course of 2023. ECB’s policy action along with rolling of base effects and easing of supply side bottlenecks should push headline inflation sharply lower in 2023 and 2024.
- “Risk to the fair value of implieds is still skewed to the downside… This is supported by the fact that implieds tend to exhibit a negative directionality to yields, locally, as we approach the end of a hiking cycle. With money market curves already pricing terminal rates around 2.65 - 2.75%, we see limited upside to yields from current levels and therefore believe that implieds also have limited upside from here.”
New structured issues
Callables: CMS, Callables
World Bank issued €50m 5y NC1 callable due Sep 2027. Coupon pays 3.075% with single call in Sep 2023. Led by Barclays.
NRW.Bank issued €70m 10y NC5 callable due Oct 2032. Coupon pays 2.97% with single call in Oct 2027. Led by JP Morgan.
KfW issued €50m 19y NC4 callable due Sep 2041. Coupon pays 3.504% with single call in Sep 2026. Led by DekaBank.
SPIRE issued €100m CMS-linked repack due 20 Sep 2034. Coupon pays EUR 20y +115bps, floored at 0%. Backed by unspecified repack. Led by Credit Suisse.
SPIRE issued €100m CMS-linked repack due 29 Sep 2032. Coupon pays EUR 20y +106bps, floored at 0%. Backed by unspecified repack. Led by Credit Suisse.
SPIRE issued €15m CMS-linked repack due 29 Sep 2032. Coupon pays EUR 20y +106bps, floored at 0%. Backed by unspecified repack. Led by Credit Suisse.
SPIRE issued €5m CMS-linked repack due 22 Sep 2032. Coupon pays EUR 20y +109bps, floored at 0%. Backed by unspecified repack. Led by Credit Suisse.
Credit Agricole lasr week issued €200m CMS-linked note due 23 Sep 2034. Coupon pays EUR 20y +81bps, floored at 0%. Self-led.
Credit Agricole issued €20m CMS-linked note due 29 Sep 2034. Coupon pays 15 * EUR 10s/20s, capped at 6% and floored at 2.485%. Self-led.
Credit Suisse issued €30m CMS-linked note due 30 Nov 2027. Coupon pays EUR 5y, capped at 4.8% and floored at 2.7%. Self-led.
CIMA Finance Ltd issued €5m CMS-linked repack due 17 May 2035. Coupon pays EUR 20y +157bps and backed by unspecified repack. Led by Santander.
CIMA Finance Ltd issued €5m CMS-linked repack due 19 Apr 2032. Coupon pays EUR 20y +157bps and backed by unspecified repack. Led by Santander.
Nordic Investment Bank issued €100m FRN-linked note due Oct 2027. Coupon pays 3mE +70bps, capped at 2.8% and floored at 0%. Led by Credit Agricole.
Credit Mutuel Arkea issued €10m FRN-linked note due Sep 2029. Coupon pays 3mE, capped at 4.36% and floored at 0%. Led by ABN Amro.