EUR/GBP Swaps: BTPs and OATs stabilise; Gilts range-trade as borrowing jumps

Prices chart 11 Oct 2021
In euros BTPs and OATs have stabilised after selling pressure yesterday, while gilts have range-traded today despite a jump in headline borrowing.

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  • BTPs and OATs stabilise; EIB 2022 review
  • Gilts range trade as borrowing jumps in low volume session


    BTPs and OATs stabilise; EIB 2022 review
    The Bund future was last +16 ticks having so far traded a 50-odd tick range during European hours while the 10y Bund yield was marked around 2.30%.

    Elsewhere, BTPs have staged a recovery after coming under selling pressure yesterday with the 10y BTP/Bund spread last 7.5bp tighter at 209bps. At the same time, the 10y OAT/Bund spread has also stabilised and was last 1bp tighter at 52.5bps after widening yesterday amid reports that OATs could be particularly hit by lower demand from Japanese investors after the BOJ’s hawkish shift.

    Bund asset swap spreads have widened by 1.5bp to 3bps, led by the front end of the curve and comes as some strategists find yesterday’s transition to the new depo level has proceeded “smoothly” for German specials, see here.

    In swaps, the curve has held onto yesterday’s steepening gains and has continued to edge slightly higher today with last prices 2s/5s at -23.74bp (+0.5bp), 5s/10s at -5.5bps (+0.25bp) and 10s/30s at -67bps (+0.5bp).

    In borrower news, EIB has published its funding highlights for 2022 and includes an assessment of the euro rates market. In terms of investor demand, it reports there has been “increased investor interest in rate products” amid a shift to positive and higher yields. It notes that swap spreads widened at the start of the year due to collateral shortages and increased hedging activity, followed by spread tightening more recently as collateral shortages eased and governments increased borrowing plans for 2023. The EIB plans to issue €45bn in 2023 after €44.3bn in 2022. For further details including foreign currency issuance, see the link here. 


    Gilts range trade as borrowing jumps in low volume session

    In sterling rates, the gilt is +24 ticks but volumes are a modest 47K in the gilt (after 150K for the whole of yesterday’s volatile, BOJ-driven session). Cash yields are indicated around 0-3bps lower across the curve with 10s/30s a touch flatter at 28.4bps (-1.4). Asset swaps are indicated another 1.5-3.0bps cheaper at the front end but 0.5-1.5bps richer from 10y and further out.


    Public sector net borrowing jumped to £22bn in November as spending surged on energy support measures and debt interest. The print was well above the consensus of £14.8bn and although the numbers had little market impact, gilts briefly underperformed Bunds and USTs a touch.


    In the front end SONIAs are 0-6bps firmer and although Dec23 is the busiest contract, volume is only around 12K with the strip still implying a peak for BOE Bank Rate of 4.66% in Sep23 followed by a fall to 4.02% by Dec24. Data showed the first rise in the Lloyds Bank ‘Business Barometer’ confidence indicator since May 2022 but the index is still low at +17.


    Inflation markets are steady after paring losses with real yields 0-2bps lower led by the long end and breakevens 2bps lower with any support from a pop in Brent back above $81 offset by a fall in the Netherlands front gas future to below €99 for the first time since mid-November as the weather remains mild and LNG imports continue to bolster inventories. Alongside massive volatility, front gas averaged around €134 in 2022  to date compared with €48 in 2021.