EUR Swaps: Rebound extends, stocks surge; More 2s/5s flattening? CME €STR futs

Prices chart 11 Oct 2021
The rebound in fixed income has extended and traders look at the next direction in swap curves.

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  • Rebound extends; More 2s/5s flattening? EuroStoxx surges
  • CME to launch €STR futures
  • Bund ASW fly at extreme levels - DB
  • New issues

    Rebound extends; More 2s/5s flattening? EuroStoxx surges
    Global fixed income continues to rebound with the Bund future last up 75 ticks and around 6 points higher than last week’s lows. “It’s not surprising that it has stayed volatile, but what has surprised is the extent of this rally,” said one trader.

    New issuance has also staged a comeback in euros with EFSF pricing €3.5bn 5.5y while Bank of Montreal and the UK’s Smith and Nephew are also pricing deals.

    Meanwhile, Bund asset swap spreads have tightened with last prices Bobl at 99.3bps (-1.3bp) and Bund at 99.0bps (-2.2bp). “I wouldn’t say it’s receiving (from new issuance) that has pushed spreads lower… more that there has been an absence of the paying flows that had been prevalent,” one trader said.

    Across the swap curve, the 2s/5s segment has flattened -2.5bp to 8bp, “It will be interesting to see if this flattening takes hold. We could maybe get back to 0bp,” a trader felt. Note that 2s/5s peaked around 18bps last week and was trading in negative territory just a couple of weeks back

    Further out, the direction is steeper with 5s/10s at 13bps (+1.75bp) and 10s/30s at -58.75bp (+4.75bp). “There’s a bit of duration-heavy supply coming later this week,” with France selling 2032, 2053 and 2066 bonds on Thursday.

    In the background, the EuroStoxx has surged by 3.5% and the 10y BTP/Bund spread is -3bp at 227.75bp.


    CME to launch €STR futures
    CME has confirmed it will launch two new €STR future contracts on 31 October. The Quarterly €STR futures will reflect €STR expectations between IMM dates while €STR single contract basis spread futures will be quoted as the difference between expected 3mE and compounded €STR. Further details can be found here and here.

    Bund ASW fly at extreme levels - DB 

    In a recent strategy note, Deutsche Bank observes how the Bund 5s/10s/30s ASW fly has reached extreme levels. It writes:

    • “German ASW spreads remain stubbornly wide while the last leg of the ASW saga involved a richening of 10y ASW vs the wings (2y or 5y and 30y), pushing the ASW fly to historically extreme levels. Both the 2s10s30s and 5s10s30s ASW flies encapsulate the widening of 10y ASW and the flattening of 10s30s swaps, both of which are currently at extreme levels vs history.

    • “Since the September ECB meeting and the decision on remuneration of excess deposits, we've seen the 2y ASW tightening by 4bp while on the contrary the 10y ASW has widened by 7bp. Over the same period, the 10s30s swaps slope flattened by more than 25bp, driving the 30y ASW 9bp tighter (since the DBR curve didn’t flatten nearly as much). All the above combined led to a further 17bp increase in the 5s10s30s ASW fly (using DBR splines data) which was already trading at historically elevated levels.

    • "The ECB is expected to start discussing QT in October (for its APP holdings), and this is something that could play a role in reversing current extreme valuations. We’ve estimated that PSPP redemptions in 2023 should total around 300bn, which means that if the ECB was to allow the roll-off of its PSPP holdings from January onwards, this would have severe implications for the net-net supply of EGBs.”


    New issues

  • Flemish Community plans to sell EUR 10y and long 20y Sustainability bonds in the near future through DB, HSBC, ING and UniCredit.

  • Estonia plans EUR 10y after investor calls through Citi, GS and SocGen.

  • Caisse de Refin l’Habitat plans to sell EUR long 5y Covered and possibly €500m 10y in the near future. Leads are BLB, CA, HSBC, LBBW, Natixis and SocGen.

  • Smith and Nephew plc, a UK medical device company, is pricing €500m (max) 7y around swaps +225bps through BofA, Mizuho, SMBC Nikko (B&D) and SocGen.

  • EDP Finance is pricing €500m (max) long 7y Green around swaps +135bps through BofA, GS (B&D), BBVA, CA, DB, Mediobanca, MS, Santander, SMBC Nikko and SocGen.

  • Madrid is pricing €500m 7y Green at SPGBs +23bps through BBVA, Caixa, CA (B&D), ING and Santander.

  • EFSF is pricing €3.5bn 5.5y at swaps -19bps with latest order book above €15bn. Leads are DB, Nomura and SocGen (B&D).

  • UniCredit Bank Czech/Slovakia is pricing €500m 5y Covered at swaps +55bps through UniCredit (B&D), DZ, Erste, LBBW and RBI.

  • Bank of Montreal is pricing EUR 4y Covered around swaps +17bps through BMO, Commerzbank (B&D), HSBC, Natixis and Rabobank.

  • Jyske Bank is pricing EUR 3.5y NC2.5 SNP around swaps +220bps through BNPP, Deka, JPM, Jyske and Swedbank.

  • DBS Bank is pricing EUR 3y Covered around swaps +17bps through DBS, Helaba, ING (B&D), Natixis, NordLB and SocGen.