EUR Swaps: Holzmann hits rally; Volatile spreads

Holzmann hits rally; Volatile spreads
Euro rates have staged a rebound today with the Bund future last up 75 ticks and the 10y yield down by 6.5bps at 2.65%.

However, the rally earlier took a knock after Austrian central banker and ECB member Holzmann said he wants a series of 50bps rate hikes at the next four meetings. The remarks swiped 8-10bps off Euribors although the market was quick to rally back, “Well, it’s pretty well known that Holzmann is a hawkish man,” remarked one trader.

The euro swap curve has flattened with 2s/5s at -42.75bps (-0.5bp), 5s/10s at -19.5bps (-3.5bps) and 10s/30s at -56.75bp (-1.25bp). “There hasn’t been a great deal of real money interest so possibly it is position related,” suggested a dealer.

Elsewhere, new issuance has seen a big revival after taking a pause during last week’s volatility. Among the names working on new deals are HSBC, NatWest and TD Bank as well as several corporates.

Meanwhile, asset swap spreads were described as volatile amid the uptick in new issuance, “There’s been a lot of activity in the roll and movements in CTD so that’s been shaking things up a bit,” a trader said. Last prices vs 6m were Schatz at 61.7bps (+0.4bp), Bobl at 60.6bps (-0.1bp), Bund at 58.4bps (-0.1bp) and Buxl at 27.7bps (+0.3bp).

Separately, in a strategy note today Commerzbank discusses last Friday’s tightening in the Schatz ASW, “This is leaving Schaz spreads on the tightest level since April at just above 60bp. The under-performance versus the ASW structure also accelerated with the Bund-Schatz box now trading at the lowest level since August excluding the very brief inversions late October. Although the Schatz underperformance looks set to slow, more ASW-tightening looks set to be in store.”

ASW and OIS/BOR tightening - NatWest
In its latest euro rates research NatWest expects swap spreads and €STR/BOR to tighten from here. It writes:

• “Swaps spreads have been surprisingly resilient in this sell-off. Perhaps that’s a combination of front-end positioning in futures and caution about buying bonds outright. At higher rates, we see less rate locking and ALM paying. Spreads should tighten.

  
  

• “At the front end, as we have explained in recent weeks, we see value in €STR-Euribor tightening, particularly from June or September contracts, where the roll-down is steep. We expect Euribor to continue to fix low, in other words, because Level 3 submissions based on smaller non financial corporate deposits are likely to continue to skew it to the lower side.”

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