EURi: Rebound as positions squared before French supply

Bounce ball 9 Mar 2023
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Euro inflation bull-flattened after 3 days of sharp falls supported by short-covering, gas futures and the approach of key French supply news.

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  • Rebound as positions squared before French supply

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    Rebound as positions squared before French supply  

    Short covering, a recovery in natural gas futures and some stabilisation in TIPS helped the euro inflation curve to bounce following three days of sharp losses, which took EUR 5y down from 3.0775% on Monday morning to a low of 2.68% today before recovering to 2.75% (+7bps) at the close. EUR 1y1y led the rebound, flattening the curve as 1y1y rose back to around 2.44%, up 10bps.

     

    Traders also linked the bounce to upcoming supply news with shorts seen squaring up before the French supply announcement. Primary dealers are due to meet the AFT this evening to discuss the upcoming auction with dealers looking for a modest €1.5bn of the OATei-29, OATi-28 and OATei-53 rather than a new 10y OATei. However, some were expecting a new 15y to 20y OATi to be launched via syndication in the following weeks. “People will be reading the auction announcement (Friday) for news on the syndication,” noted one trader. And the auction  itself could be a beauty parade – on the same day as the ECB meeting, raising the value of the non-comp option.       

      

    EUR 10y swaps rose to 2.5875% (+4.75bps) and 5y5y crept back up to 2.425% (+2.75bps). Trades on the SDR included EUR 1y at 4.03% early doors rising to 4.10% and 4.125% late in the day. EUR 10y went through a few times at 2.5542%, 2.56% and 2.5825%.

     

    Meanwhile cash real yields rallied by 0bp to 6bps led by the front end today. 

     

    Finally, the final day of the new BTP Italia 2% Mar 2028 offer saw the Treasury sell a further €1.35bn of the bond to institutional investors, taking total issuance to €9.9bn compared with €12.0bn for previous line, the 1.6% Nov 2028, launched in October 2022. Dealers said that  

     

    New issues

    • Credit Agricole sold a €4m zero coupon inflation-linked MTN due 17 Mar 2025. The note is linked to euro HICPx and self-led.

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