EUR Swaps: Yields lower as sentiment sours

Euro fixed income rallied with sources blaming a combination of factors including a slight souring of sentiment.

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  • Yields lower as sentiment sours 
  • DFA issuance for Q2 unchanged
  • New issues

    Yields lower as sentiment sours
    Euro fixed income ended its recent losing streak today as the the Bund future rallied more than a point and the 10y yield declined by 10bps to 2.23%. Meanwhile the Euro Stoxx Banks Index has declined by 1.4% while the Schatz ASW has led the widening across the spread curve.

    Sources blamed a combination of factors for today’s risk aversion. Yesterday’s dovish hike from the Fed and the mixed performance from US banking stocks contributed to the move, say sources.

    “Probably it’s the Fed decision along with a bit of souring of the mood with regard to banks given the the poor share price action in US banks yesterday. It had previously looked as if the authorities had managed to turn around the sentiment and avert the risk of bank runs,” felt one market participant. European bank shares are 0.5% to 4% lower today.

    In latest ECB speak, Holzmann and Knot both suggested the size of May’s hike will be data dependent, thus sticking to the line from Lagarde during the previous ECB meeting, “The hawks are not stamping in the ground and demanding 50bps,” it was pointed out by a trader. 

    Meanwhile, the UK earlier hiked rates by 25bps to 4.25% as expected and short-end gilts have rallied sharply with the 2y yield last -16bps at 3.33%. SONIA futures have gained around 20bps in the reds while Euribors are up by 15bps or so.

    Elsewhere in euros, one of the standout moves has been widening in the Schatz ASW, “It’s probably souring of the mood and also directional with the Bund rally,” a source felt. Last prices vs 6mE were Schatz at 83.4bps (+5.2bp), Bobl at 80.2bps (+4.1bp), Bund at 75.7bps (+3.1bp) and Buxl at 36.6bps (+3.4bp).

    Finally, there has yet to be a material pick-up in new issuance activity with VW International Finance the only name looking to issue in euros today with a dual tranche 3y and 6y Green deal.


    DFA issuance for Q2 unchanged
    The DFA today announced that its issuance plan for Q2 2023 remains unchanged from its annual forecast published in December 2022, see DFA statement

    In a research note published earlier today and ahead of the announcement, strategists at Commerzbank explain why they were expecting no change: “While fine tuning of the auction volumes cannot be excluded, it seems too early for major funding adjustment as historically Q2 adjustments were minor (no changes at all in 2022, €2.5bn Bund funding increase in 2021). The recent decline in gas/energy prices implies lower funding needs down the road, but DFA will probably wait for clear signs from Berlin before material adjustments to Bund funding become an option.”


    New issues

  • VW International Finance is pricing €1bn Green 3y at swaps +85bps and €750m 6y at swaps +135bps. Led by Commerzbank, DB, NatWest (B&D), RBC and SocGen.