EUR Swaps: Hawks quiet so far; US data eyed

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The ECB hawks have so far been quiet with little sound of pushback against yesterday's market moves.

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  • Hawks quiet so far; Interest to fade? 
  • ECB market reaction - strategists 
  • New issues

    Hawks quiet so far; Interest to fade?
    The Bund has retreated by a point today but remains around two points higher since Thursday’s open. “So far the hawks have been quiet with no sounds of a pushback,” said one euro trader earlier. In the front-end, white and red Euribors are down by 2-4bps in volumes of 50-80k.

    In the near-term, euro sources say they are looking towards the US payroll data at 14:30 CET for the next market cue. The Bloomberg forecast at +188k versus +223k prior. “We are expecting something a bit above the consensus,” said one trader at a European bank.

    As for interest to fade the recent sharp moves one trader said it would depend on the accounts, “Real money tend be that much slower (to react). But at these levels it could be quite attractive to pay. But they may have to be quick as we are expecting a bit of a rebound (in yields),” he said.

    Across the swap curve last prices were 2s/5s at -39bps (+3.75bp), 5s/10s at -6.75bps (-0.25bp) and 10s/30s at -43bps (unch).

    Elsewhere, Bund asset swap spreads have tightened but have yet to retrace all of yesterday’s big widening move. Last prices were Schatz at 69.5bps (-1.1bp), Bobl at 65.2bps (-1.5bp),


    ECB market reaction - strategists
    Strategists analyse the market’s big reaction to yesterday’s ECB meeting and the sharp rally in Bunds and BTPs.

    BNP Paribas: “In an apparent attempt to sound hawkish, the ECB unveiled its next move only to push the market into positioning for the policy move after that. The mention of the evaluation of the ‘subsequent path of its monetary policy’ in the statement sounded like a ‘pivot’ to the market, triggering a substantial rally on the euro market. Despite the door being left open to more hikes (50bp or 25bp) beyond March, the market is playing it safe with regard to positioning for the ‘peak’ in rates. In the coming days European yields could rebound as we would expect the hawks on the ECB to dislike latest price action.”


    Commerzbank: “The ECB pretty much delivered what had been ordered. Yet, market perceptions seem to have shifted dramatically… In essence, markets are treating the ECB's ‘forward hikes’ as the grand finale where the hawks are given another 50bp hike for March while the doves know that the situation could then look very different by May - hence mirroring the messages given by the Fed and BoE respectively. This is allowing markets to pin down the terminal rate and changes the game for real as dips may be bought with much larger confidence now that risks of yield overshooting have been reduced significantly. This is also captured in implied vols that continue their free fall with EUR 3m10y vols trading below 100bp for the first time since last June.”


    NatWest: “Markets have made up their mind on the disinflation theme for now. In this global environment not hawkish is dovish… We do not agree with the force of bullish curve inversion. Hikes can be priced out, starting with March. More rate cuts can be priced in above the first full 25bp in March 2024. But cuts look less likely to be the consequence of the ECB having slammed too hard on the brakes. We like 2s5s steepeners, although 1y1y vs short 5y balances volatility more equally and captures rate cut risk more directly.”


    New issues

  • Nordea Bank is pricing €1bn 3y NC2 SNP at swaps +48bps through BofA (B&D), JPM, Nordea, SocGen and UBS.

  • State of Berlin plans €750m (max) 10y Sustainable through CA, Deka, DB, Rabo and UniCredit.

  • Santander is holding investor meetings for the sale of EUR Covered bonds through CA, Santander and UniCredit.