EUR Swaps: Pace of hikes; ASW profit-taking

Line chart 25 Mar 2021
Traders question whether to keep their faith in Lagarde and 50bp rate hikes.

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  • Long-end gains; Lagarde questioned 
  • Bund ASW profit taking - Commerzbank
  • New issues

    Long-end gains; Lagarde questioned
    The 10y Bund and longer-end of the euro curve continued to post gains today with the 10y yield last marked around 2.04% (-5bps). Overnight, the BOJ voted unanimously to keep its YCC policy unchanged, defying market expectations of adjustments or even a full policy abandonment, see JPY Swaps

    Elsewhere, the front-end of the curve lagged behind with Euribors selling off first thing as Banque de France Governor Francois Villeroy said the ECB’s guidance for 50bps rate hikes remains valid. Yesterday Bloomberg reported the ECB may opt for a 25bp hike in March after a 50bp hike in February, citing unnamed ECB officials.


    Speaking about a possible slowdown in the pace of rate hikes, one trader said, "It's not been enough to kill off the idea of 50bps rate hikes after Lagarde's hawkishness at the previous meeting. That said, Lagarde has let us down before."


    Elsewhere, the pace of new issuance has slowed but several banks are still active in the 5y-7y sector. "There's been some more receiving. Some clients have been questioning this rally and are not sure what is going on," said one dealer. 


    Bund asset swap spreads are mixed with the Bobl underperforming a touch, last 0.5bp tighter at 60bps. Meanwhile, one trader agreed it "probably makes sense" for anyone holding speculative tighteners to cut back on positions. 


    Bund ASW profit taking - Commerzbank
    In a strategy note published today Commerzbank recommends reducing exposure on Bund ASW tighteners. It writes:

    • “Before the ECB sources, ASW-spreads were stealing the show with 10y Bund swap spreads hitting our 55bp target (initiated at +94bp on 19 Oct). The ongoing cheapening of the Bund scarcity premium is key but it does not constitute the only factor, as the market's ever stronger terminal rate conviction as captured by plummeting implied vols (and realized vols of ECB-dated forwards) keeps on pushing the tightening move.

    • “Our models have become very balanced, and although the case for more tightening remains compelling, risk/reward has shifted given risks of lower net supply on cheaper gas bill and higher collateral demand on 0% cap.

    • “So in sum, we can easily go to 45bp in 10y spreads judging by our models and considering the very short-lived recovery of 30y spreads over recent weeks. That being said, the tightening move will be more gradual from here and - what's more - no longer in a straight line. Thus, we expect more tightening, but recommend taking profit / reducing tightening exposure.”


    New issues

  • ESB Finance DAC is pricing €300m 20y around swaps +140bps through BBVA, BNPP and HSBC (B&D).


  • NIB plans a €500m 7y Environmental bond through BNPP, Citi and Danske. 

  • Op Mortgage Bank is pricing €1bn 7y Covered around swaps +20bps through BNPP, JPM, LBBW and Op Bank.

  • State of Brandenburg is pricing €500m (max) 6y at swaps -5bps through Citi (B&D), Helaba, LBBW, NordLB and TD.

  • Eurobank plans EUR 6y NC5 through BNPP, GS, HSBC, IMI and UBS.

  • National Bank of Canada is pricing EUR 5y around swaps +125bps through BNPP (B&D), Commerzbank, NBC, Natixis and NatWest.

  • Ibercaja Banco is pricing €350m (max) perp NC5.5 AT1 around 9.625% through Barclays, HSBC, JPM and MS.


  • Iberdrola plans a €1bn perp NC5.5 Green hybrid at 4.875%. Leads are BNPP (B&D), BBVA, BofA, HSBC, IMI, Mizuho, MUFG, Natixis, Santander and UniCredit. 

  • Hypo Oberosterreich is pricing €250m long 4y Covered at swaps +27bps through Deka, DZ (B&D), Erste and Helaba.

  • Caja Rural de Navarra is pricing €500m long 4y Green Covered around swaps +40bps through ING, LBBW, NordLB and Santander.

  • Muenchener Hypo is pricing €1bn short 3y Covered at swaps -9bps through Barclays, CA, Deka (B&D), DZ, LBBW and UniCredit.

  • AIIB, Asian Infrastructure Investment Bank, plans EUR Sustainable Development bond through Barclays, DB and JPM.