EUR Swaps: Latest supply round eyed
Latest supply round eyed
Amid the US Martin Luther King holiday, EGBs have been drifting lower with the 10y Bund future last down by 22 ticks while the 10y yield has risen by 2bps to 2.20%.
Speaking earlier, one trader reckoned this week could be interesting when it comes to price action, “The first couple of weeks saw big supply that was widely anticipated and taken down pretty well by the market. Positioning now feels a lot cleaner and it will be interesting to see how the next supply round gets digested,” he felt.
Among the the latest syndications to hit the screen, Greece announced today that it is working on a long EUR 10y issue. Elsewhere, Spain is still waiting in the wings with a possible new deal. Next week, the European Union is scheduled to arrive with a big syndication.
Swap spreads are 0.5bp to 0.75bp tighter across the 5y to 30y sector of the curve. “There has been some profit-taking (from shorts) but overall the bias seems for more tightening,” reckoned one dealer.
Elsewhere, the swap curve is a touch steeper across the belly with last prices 2s/5s at -40bps (+1bp), 5s/10s at -6bps (+0.75bp) and 10s/30s at -54.4bps (-0.75bp).
Finally, falling gas prices have accompanied another sharp drop in front end euro inflation swaps, with EUR 1y down 15bps to 2.55% and 2y down 9bps to 2.35%.
10s/30s steepeners attractive - NatWest
In its weekly rates research published today NatWest likes 10s/30s swap steepeners. It writes:
- ”We think 10s/30s steepeners in swaps look attractive this week. Demand for long end swaps also seems to have slowed. We expected a slowdown from pensions after the rush at the end of last year. Some long end supply is likely to be bought now by asset swappers (banks, insurance, foreigners).
- “Financial supply has started the year very strongly and has been helping push asset swaps tighter. Tighter asset swaps are a key theme for us this year. Bund spreads to 30-40bp seems possible with lower volatility, greater collateral availability, and lighter ALM paying in swaps.
- “But in the near term, lower rates may reactivate some ALM paying, encourage investors to buy on asset swap, and corporates to pay swaps to lock in bond issuance later this year. For this week, we’re just monitoring asset swaps.”
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