EUR Swaps: Steeper as EU 30y tap announced

EU 30y tap announced
The European Union announced today it will target the longer-end of the curve in upcoming supply, as expected. The issuer said it will tap its Mar 2053 bonds via syndication on Tuesday through BNPP, JPM, NatWest, Nomura and UniCredit.

In the market, the long-end of the euro swap curve steepened up to -50.75bp (+1.5bp) before paring back to -51.25bp last. “The reaction, or lack of it, suggests it was expected,” suggested one euro swapper.

Elsewhere, global fixed income is in retreat with the 10y Bund future last down 30 ticks and the 10y yield marked around 2.20% (+2bps), while the EuroStoxx has gained +0.5%. In inflation markets, the front-end has nudged higher with the EUR 1y HICP swap marked up 5.75bps at 2.42%.

Bund asset swap spreads are wider across the curve despite several banks working on new issues across the 3y to 5y sector including NAB and Commerzbank. “We haven’t seen too many offers coming in yet,” reported one trader, still he noted that receiving interest could appear later in the session.

Last ASW prices were Schatz at 68.0bp (+2.5bp), Bobl at 64.2bps (+1.3bp), Bund at 62.6bps (+1.2bp) and Buxl at 27.5bps (+1.8bp).

Enter EUR 10s/30s steepeners - NatWest
Strategists at NatWest recommend fading the recent flattening in long-end EUR. It enters EUR 10s/30s swap steepener at -52.25bps and targets -35bps with 3m carry +1bp. The bank writes:

• “The dovish BoJ, then the more hawkish ECB, the French 30y syndication no-show and 10s/30s bunds reaching flat all pushed the long end substantially flatter. We’d feel more confident if Buxl open interest had fallen by more in the rally that followed the bund auction. French 30y supply remains a risk for next week. Late January is the normal moment.

  
  

• “10s/30s looks very flat compared to gilts and treasuries. Swaps still look the ideal to way to express the steepener since long end receiving has slowed down from last year and attractive-looking long-end asset swaps may draw more buyers given how much rates have falling since the New Year.”

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