EUR Swaps: ASW buyer talk; BOR/OIS narrower

ASW buyer talk; BOR/OIS narrower
Bund asset swap spreads have traded “pretty resiliently” as more new issuance hits the screens including several non-euro names. “It seems some is being bought on asset swap,” said one trader.

At the same time, he was not ruling out the possibility that Belgium’s €5bn 30y could be seeing buyers on asset swap. The deal is being priced at OLOs +8bps through BNPP, DB, JPM (B&D), MS and Nomura. The latest order book size is reported to be above €34bn including lead interest.

Last spread prices vs 6s were Schatz at 66.8bps (+0.9bp), Bobl at 63.0bps (+0.1bp), Bund at 59.6bps (+0.6bp) and Buxl at 27.0bps (+1.1bp).

In basis, BOR/OIS, has narrowed led by the 5y sector and down by -0.7bp at 12.2bps. “Recently, some fast money accounts have been buying asset swap spreads vs €STR,” one trader observed. Elsewhere in basis, 3s6s has edged +0.1bp to +0.2bp wider across the curve.

In swaps, the curve was little changed with last prices 2s/5s at -39bps (-1bp), 5s/10s at -12bps (unch) and 10s/30s at -53.25bps (0.5bp).

The Bund future was last trading near unchanged around 135.21 and the 10y Bund yield marked around 2.445% (unch). Ahead, US retail sales data at 14:30 CET is seen as the near-term cue for the market.

Tactical Schatz ASW narrower - JPM
In its most recent rates weekly JP Morgan holds a tactical narrowing bias in the Schatz swap spread. The bank writes:

• “The Schatz swap spread narrowed after the ECB announcement but rewidened afterwards and is now marginally too wide in our long-term model versus funding rates, intra-EMU spreads and short-end volatility, and also too wide in short-term regression vs funding rates.

  
  

• “We turn to a tactical narrowing bias over the short term on expectation of further cheapening of funding rates as QT starts.

  
  

• “One risk to Schatz spread narrower would come from wider intra-EMU spreads. However, we note that current valuations are already broadly consistent with BTP/Bund about 20-25bp wider than the current level, and not far away from our tactical 1Q23 target, therefore reducing the re widening risk in case of peripheral weakness.”

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