EUR Swaps: Front-end pressured; Big flattening continues

Rolled flat 18 Jun 2020
The front-end stayed under pressure while big flattening across the euro swap curve continued.

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  • Front-end pressured after Fed, BOE
  • Sharp curve flattening continues
  • New issues

    Front-end pressured after Fed, BOE
    The front-end end of the euro curve stayed under pressure today as Euribors sold off 15bps first thing before paring losses with red contracts last trading around 9bps lower after the BOE's rate hike.

    “It’s partly a reaction to the Fed and a continuation of flows that have been around since clients returned from vacation,” reported one trader, highlighting good swap paying from end-users in the front-end.

    Overnight, the Fed hiked by 75bps as expected but also increased rate projections leading to a sharp plunge in front-end USTs, see here. Then today, BOE hiked by 50bps as expected leading to a bounce in very front white SONIA futures although they remain as much as 14bps lower in the reds and greens.

    “All the action from central banks has been pretty hawkish and there is a feeling the ECB risks getting behind the curve,” argued one trader.

    Sharp curve flattening continues
    Sharp flattening across the euro swap curve remains a theme with 10s/30s falling to -63bps (-5bps) and has now lost around 15bps over the past two sessions. Commenting on today’s latest plunge, one trader said, “It just dropped without trading.”


    Elsewhere, 2s/10s was marked as low as -16bps (-8bps) before coming back to -10.5bps last.


    “I don’t think you’ll get many people arguing against the flattening when you look at where other currencies are trading,” said one trader. “But it’s the sudden pace of the drop that seems to have taken the market by surprise,” he suggested. 

    Elsewhere, price action in the Bund future has been more muted, last trading near unchanged around 141.20. The Dutch gas future is up about €1.5 around €191.25 while EUR 1y inflation swap is being marked +3bp at 5.77%. The 10y BTP/Bund spread is 1.75bp tighter at 220.5bps while the EuroStoxx is -1%.


    New issues

  • Joint Agencies is pricing €500m 7y Social at swaps -7bps through Commerzbank (B&D), DZ, Helaba, LBBW and UniCredit.

  • Smith and Nephew, a UK medical company, plans to sell €500m (max) 7y after investor calls on 26 Sep. Leads are BofA, Mizuho, SMBC Nikko and SocGen.