EUR Swaps: Issuance deluge tightens spreads; 3s6s forwards paid

Global rally; German CPIs; Issuance deluge
A global fixed income rally is underway, recouping much of the sharp selloff that occurred into the 2022 year-end, leaving the 10y Bund future last up around 55 ticks despite paring early gains, while the gilt future is still trading over a point higher.

Some dealers highlighted the global nature of today’s fixed income rally. “US Treasuries are performing well and we’re not quite sure what is driving it,” said one euro trader, “Perhaps it’s some positioning ahead of the jobs data and Fed minutes,” he suggested.

Back in euros, regional German CPIs printed on the “slightly softer side” earlier and helped fuel the gains in euros, a source felt. In the short-end, red Euribors have rallied up to 5bps although volumes are still on the low side at around 35k per contract. Still, euro HICPx swaps are around 3bps firmer at the front of the curve, even with oil and gas futures lower.

Elsewhere, a major theme has been the huge pick-up in new issuance as over a dozen deals are set to price today including several banks. Among them are ABN Amro, BBVA, BNP Paribas, Credit Agricole, Danske, Rabobank and Santander, while most of the issuance activity is concentrated across the 7y to 10y sector.

In terms of swap flow, one trader reported some receiving going through that was most likely “on the back of issuance activity”. Asset swap spreads are 1 or 2bps tighter he noted, “That’s a bit unusual with the rally that’s going on and probably reflects some swapping (of new issues)".

At the same time, 3s6s basis has also been bid with 10y marked up 0.65bp today and around 1.5bps higher than the end of last year. “There’s been paying interest in forwards,” a trader observed.

Finally, the first sovereign syndications of 2023 are hitting the screens. Austria has announced it plans to sell EUR 10y through Barclays, BofA, DB, GS, JPM and UniCredit. Elsewhere, KfW is working on a EUR 5y deal as well as pricing £1.25bn long 3y today. EIB has announced a 5y USD Global. 

Close out short 10y Bund - BNP Paribas
In a strategy note published this week BNP Paribas closes out its short 10y Bund position, entered at 1.99%, for a profit. The bank explains:

“Following the hawkish ECB meeting and important development overseas, EGB yields reached new highs, with the Bund breaching our 2.50% target. While we maintain our 2.75% yield forecast for 10y Bunds by Q1 2023, we prefer tactically to take profit at this stage. The sharp repricing seen in recent weeks increase the odds that eh early wave of January supply is well absorbed, which could trigger a temporary rally. If sizeable, we would recommend going short, subject to timing.

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