EUR Swaps: ASW selling; Next cue the Fed

Computer lines code 30 Jan 2023
Improved risk sentiment has seen ASW selling. The next cue is seen as the FOMC meeting.

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  • ASW selling; Next cue the Fed
  • Bear-flattening bias - JP Morgan
  • New issues


    ASW selling; Next cue the Fed
    Sentiment has turned into risk-on today with the 10y Bund yield 15bps higher and the Euro Stoxx Banks Index 5% stronger, with UBS +9.6%.

    In terms of flow, one trader reported selling in swap spreads, “Fast money have been playing the range and selling the Schatz spread. It’s likely they’ll be quick to turn profit though,” he reckoned, noting the risk from the FOMC meeting on Wednesday, "We think they'll go for a 25bp hike but there is still the risk they do nothing." 

    Today the Schatz vs €STR spread is 5bps tighter at 53bps having peaked as high as 75bps at the start of yesterday’s session. However, it remains elevated having been marked below 40bps just a couple of weeks back before the SVB crisis flared up.

    In the short-end, white Euribors have sold off up to 21bps while reds are up to 15bps lower. “Things are still feeling quite tentative, we haven’t seen any major flows from our vantage point,” said one trader, referring to positioning in the short-end.

    Across the swap curve the direction has been flatter with 2s/5s at -24bps (-1.5bp), 5s/10s at -7.75bps (-2.25bp) and 10s/30s at -56.75bps (-3bps).

    The improving risk sentiment has narrowed basis spreads with the first IMM FRA/OIS spread 4.3bps tighter at 7.7bps having peaked above 15bps last week.


    Bear-flattener bias - JP Morgan
    Strategists at JP Morgan hold a money market flattener bias but refrain from outright flatteners at the moment. It writes:

    • “We have been expressing a flattening bias on the money market curve. These flatteners will perform if concerns around the banking crisis subside (or does not escalate further) and the central banks continue with their hiking cycle over the coming few meetings.

    • "However, we have seen over the past few days, pacing of disaster scenario and associated easing cycle is likely to be associated with a bull-steepening dynamic of the money market curve. Thus we stay on the sidelines from outright money market flatteners and instead keep our Sep23/Sep24 Euribor conditional bear flattener.”

    New issues

  • Lower Saxony is pricing €500m 5y at swaps -9bps through BayernLB, Commerzbank (B&D), DB, DZ and UniCredit.