EUR Swaps: New month brings new hopes

Graph paper
Bund yields once again printed recent highs before drifting back. Meanwhile some traders argue there are signs the market is stabilising.

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  • New month brings new hopes
  • Short Bund ASW vs UST - BNP Paribas
  • New issues

    New month brings new hopes
    The 10y Bund yield once again posted recent highs and peaked around 2.77% (+6bps) first thing before drifting back to near unchanged at 2.71% last.

    As expected after recent strong French, Spanish and German inflation prints, today’s euro area HICP was above consensus at 8.5%yoy vs 8.3% while core was 5.6%yoy vs 5.3%.

    Meanwhile some traders voiced optimism that rates are starting to stabilise, ”Interest rate markets had a big sell-off in February but are now finding stability,” argued one. “The (higher-than-consensus) inflation data triggered a big sell-off in Bunds but the reaction showed that speculative money is now short and suggests different trading conditions for the month ahead,” he reckoned.

    The short-end has seen a slight rebound with reds last trading up to 4bps higher. “For those with the risk limits there has been interest to fade recent moves,” said one trader. Further out, the swap curve has seen some steepening with 5s/10s at -13.5bps (+2.25bps) and 10s/30s at -54bps (+0.5bp).

    Elsewhere, recent volatility has led to a slump in euro issuance over the past couple of sessions. “Perhaps counterintuitively, but the decline in issuance has actually helped spreads to narrow because we had been seeing buyers on asset swap spreads.” Last prices were Schatz at 67.7bps (+0.2bp), Bobl at 64.7bps (-1.1bp), Bund at 60.7bps (-0.9bp) and Buxl at 28.5bps (-0.8bp).


    Short Bund ASW vs UST - BNP Paribas
    Strategists at BNP Paribas roll over short Bund ASW vs UST amid diverging supply dynamics. The bank recommends long TY vs SOFR and short RX vs 6mE at 96.35bps, targeting 60bps and stop at 130bps. It writes:

    • “We reiterate divergence in supply dynamics between the two regions. In the Eurozone we expect net supply net of QE/QT to rise to €607bn, more than triple last year’s levels, supporting a cheapening in German collateral, while in the US we estimate net supply net of QE/QT will halve this year.

    • “We also expect swap flows will continue to normalise in the Eurozone, which should alleviate pressure on the 10y area in the swap and allow Bund ASWs to cheapen. Meanwhile, in the US, once a recession materialises, the demand backdrop for USTs from banks and other investors is likely to become much more favourable.”


    New issues

  • Pandora, a Danish jewellery company, plans to sell €500m 5y SLB through BNPP, Danske, MS and Nordea.

  • Mortgage Society of Finland plans €300m 5.5y Covered bonds through Danske, Deka, Natixis and Nordea.