EUR Swaps: Surprised and wounded at sell-off speed

Sad wfh trader 11 Oct 2021
Sources say the speed of the rate selloff has surprised and wounded some market participants.

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  • Surprised and wounded as selloff extends
  • New issues

    Surprised and wounded as selloff extends
    Higher-than-forecast German inflation data, hawkish ECB comments and growing nervousness about a possible large-scale selloff has kept the pressure on euro rates today as the 10y Bund yield climbed another 7bps to 2.72%.


    To begin with, regional German CPIs printed on the high side at the start of the session and the overshoot was later reflected at 14:00 CET in the preliminary national HICP at 9.3%yoy vs 9.0% consensus, up from 9.2% the previous month


    In latest ECB talk, German central banker Nagel said markets had previously been too optimistic about getting inflation under control. Ahead, he said significant hikes beyond March will be necessary according to a Bloomberg interview.


    In terms of positioning and market thinking sources say there has been considerable pain (e.g. the Euribor curve) and nervousness about the selloff turning more aggressive. “The speed of the outright selloff has clearly surprised, upset and wounded people,” summed up one market participant.


    In vol markets, EUR 3m10y implied is up 4.6 normals at 112.7 today, the highest level since early January, having gained 7 normals since the start of the week. In the top left, 1y1y is 3.6 normals higher and up almost 10 on the week.


    "Liquidity hasn't been too bad and clients are looking to get things done, but we are seeing bids and offers starting to widen as you would expect," said one trader. "No doubt there will be a calm after the storm," said another. 


    Across the swap curve the direction is mixed with 2s/5s +1.5bp at -38.5bps, 5s/10s -2bps at -16.25bps and 10s/30s -1.75bp at -54bps. "As we have come to expect, the belly is leading the selloff," a source noted. 


    New issues

  • Teva Pharmaceutical is pricing €800m 6.5y around 7.375% and €500m 8.5y around 7.875%. Leads are Citi (B&D), GS, Mizuho and MUFG.

  • IB Schleswig-Holstein is pricing €500m 8y at swaps +2bps through Commerzbank, Deka, Helaba, LBBW and UniCredit (B&D).

  • Proximus is pricing €500m 7y at swaps +75bps through BNPP (B&D), Barclays, Commerzbank and KBC.

  • CaixaBank is pricing €750m perp NC6.5 AT1 at 8.25% through Barclays, Caixa, GS, JPM and UBS (B&D).