Recovery and US CPI help bull-steepen curve as French supply approaches
The Bund may be back down to 134 rather than 137 but that’s still 2 points above where it finished last Thursday, before the chaos. Similarly, Jun23 EURIBOR is around 25 ticks higher than before SVB's collapse, even after falling 10 ticks today. In inflation, EUR 5y5y is back to 2.43% (+6bps today) ahead of the ECB meeting and up to €1.5bn of French supply later this week, pretty much the level it was just before SVB took over the headlines. But the front end is still slightly below pre-SVB levels, with EUR 1y1y at 2.33% (+3bps) compared with 2.44% last Thursday
In today’s trading, a post-CPI rally in TIPS provided support for euro inflation with the 5y USD breakevens around 14bps stronger. More generally, gains for most bank stocks – including First Republic – also helped encourage a risk-on mood. But reports suggest that the US GSIB banks were seeing strong deposit inflows, Credit Suisse fell again and losses for Brent (-$2) and Dutch gas futures (-11%) were inflation-negative.
Ahead, as well as gauging the ECB’s degree of hawkishness, the market will have to digest €1bn to €1.5bn of OATei-29, OATi-36 and OATei-53 on Thursday. Traders last week suggested that the auction could be something of beauty parade, depending on the AFT’s decision on a 15y to 20y OATi syndication, while the AFT's non-comps would be valuable given the ECB decision on the same day. Dealers today reported “no concession” ahead of the supply, with the OATi-36 “bid only”. OATei real yields backed up by 6-9bps today, led marginally by the front end.
In swaps, EUR 10y rose steadily to 2.56% (+6bps), EUR 5y increased to 2.68% (+5bps) and 10y10y rose to around 2.66% (+6bps). SDR reported trades included EUR 1y at 4.025% and EUR 5y at 2.679%, 2.675%, 2.685% and 2.695% last, the latter in €100m.
- Credit Agricole launched a €1m zero coupon inflation-linked EMTN due 3 Apr 2025. The note is linked to euro HICPx and self-led.