EUR Swaps: Risk sentiment worsens into weekend
Risk sentiment worsens into weekend
Risk sentiment continued to curdle today after concerns re-emerged during yesterday’s session with regard to banking stocks. The 10y Bund yield has slumped 10bps to 2.10%, the Euro Stoxx is down by 1.8% while the Euro Stoxx Banks Index has dropped 4.4%. Elsewhere, single name bank CDS have seen big moves over the past 24 hours, led by a +17bps jump in Deutsche Bank, see Bank CDS the latest attack vector.
“It’s a case of sentiment worsening into the weekend and people not wanting to carry risks,” felt one trader. “The performance of US banking stocks after the Fed (on Wednesday) seems to have been the trigger and now people in Europe are starting to question banks again which the EU authorities will not like.”
Bund asset swap spreads have pushed wider. Unlike previous sessions, the gains have pretty even across the curve with last prices Schatz at 86.8bps (+2.2bp), Bobl at 83.9bps (+3.4bp), Bund at 79.1bps (+3.3bp) and Buxl at 39.3bps (+3.3bp).
In cross-currency basis, the EUR/USD first break has dropped around 13bps to -32bps but remains above the lows around -50bps reached a few sessions back. In euro basis, the first IMM FRA/OIS contract has widened by 3.7bp to 13.2bps although this is below the highs of 15bps or so reached a couple of weeks back. Elsewhere, the general trend for Eurex-LCH basis this year has been widening but today it is a touch tighter with 10y last -0.05bp at 3.85bps and 30y -0.1bp at 1.5bps.
Finally, implied vols have also jumped with short-dated gamma expiries such as 3m2y and 3m10y about 10 normals higher at 181.5 and 130.4, respectively.
ASW spreads in vacuum - Commerzbank
In its latest weekly research, strategists at Commerzbank find Bund ASW spreads appear to be trading in a vacuum and argue current levels look unsustainable. It writes:
- "Bund ASW spreads seem to be establishing their own vacuum. Granted, Schatz spreads are some 25bp off the wides printed early Monday morning. Yet, at currently 80bps that’s still some 20bp wider than pre-SVB and the picture looks similar for Bobl and Bund spreads.
- “The stickiness is all the more remarkable as the Bund premium in repo remains immaterial: after the extreme pressure on the CTDs had already normalised upon conclusion of the futures delivery, the ten most special bonds have traded 20bp through GC throughout the latest turbulence - the cheapest level in years. In addition, Schatz invoice spread against €STR are trading very rich compared to repo spreads vs €STR in spot.
- “While higher uncertainty implies greater demand for safety, we stick with our view that current levels are unsustainable in absence of a full-blown crisis, particularly in the long-end.”