EUR Swaps: Carry trades eyed amid cleaner positioning

Graph paper
Euro market participants contemplate entering carry trades amid cleaner positioning.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • Carry trades eyed amid cleaner positioning
  • Looking for carry - SocGen
  • New structured issues

    Carry trades eyed amid cleaner positioning
    Fixed income is in retreat with the Bund future taking back yesterday’s rally and the 10y future last down around 70 ticks while the 10y yield was marked around 2.36% (+5.5bps), not too far from the peak of 2.40% reached earlier this week.

    One of the theme’s in latest research is interest to enter carry trades, with some accounts looking at receiving swap flies. Commenting on interest to re-enter carry trades, one trader said, “Positioning certainly appears a lot cleaner than it was just over a week ago so I guess it would make sense.”

    Meanwhile, carry trades typically perform in low volatility environments, “We do continue to see these outsized moves every few sessions, especially in reaction the data. But bigger picture, it’s true the market feels quite rangebound.”

    In the swap market, the 2s/5s/10s swap fly was last marked around -31.5bps (vs a low around -36bps in February) and the 5s/10s/30s fly around -45bps (vs recent low around -37bps).

    Elsewhere, Bund asset swap spreads across the 5y to 30y sector have edged slightly tighter after re-widening during the previous couple of sessions. Last prices vs 6mE were Bobl at 61.3bps (-0.4bp), Bund at 57.5bps (-0.7bp) and Buxl at 23.8bps (-0.4bp).

    Ahead, traders plan to listen out for comments from ECB GC member Schnabel in a Q&A session later this afternoon. Slightly further ahead, among the highlights next week is expected to be the EU’s latest bond syndication.


    Looking for carry - SocGen
    Strategists at Societe Generale also suggest looking for carry, in flies and peripherals. They write:

    • “We favour carry and strategies consistent with bias for lower rates volatility. A rangy, even if choppy, rates market regime suggests value in different carry trade expressions. An obvious one is to overweight non-core bonds vs core.

    • “Longs in BTPs vs Bunds now offer better risk-adjusted carry than outright longs in Bunds. In EUR curve space, a typical carry trade, which performs when volatility falls, is receiving EUR 5s/10s/30s fly. Today, it generates carry and rolldown of +2.8/3m… Over the longer term, the fly should drop below 20bp, if EUR 3m10y volatility declines to 70bp/y, as we expect.

    • “We also see value in receiving 2s/10s/30 (carry and rolldown +1.6bp/3m), correlated to 2s/5s, as we target 2s/5s inverting to the -50bp/-55bp area, which could drive the fly well below zero. Finally, a gradual decline in EUR rates volatility should be consistent with a slow but sure steepening of the EUR 10s/30s curve relative to Bund 10s/30s.”


    New issues

  • CRH is pricing €1bn 10y Covered at swaps +28bps through Barclays, Commerzbank, HSBC, LBBW (B&D), Natixis and SocGen.

  • Nokia is pricing €500m 8.5y SLB around swaps +190bps through BofA, Citi (B&D), DB and UniCredit.

  • Lower Saxony plans EUR long 5y through BayernLB, Citi, Commerzbank, NatWest, NordLB and Rabobank.

  • Handelsbanken is pricing EUR 5y around swaps +75bps through Barclays, BofA, CA, JPM and Handelsbanken.

  • UniCredit plans EUR 2.5y Covered through ABN Amro, BayernLB, CA, DZ and UniCredit.