EUR Swaps: Issuance revival drives 3s6s basis; Eurex-LCH talk

Euro notes pile
A revival in new issuance activity has helped spur activity in 3s6s basis. Sources also discuss recent moves in Eurex-LCH basis.

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  • Issuance revival drives basis
  • No news is good news - Commerzbank
  • New issues

    Issuance revival drives basis
    A revival in new issuance has spurred activity in the basis market with 3s6s better bid and 5y last +0.4bp at 5.3bps.

    Better bids in longer-dated 3s6s basis also caught the eye. “Possibly people have been looking at 5y and 10y 3s6s moving on new issue related flows and therefore thinking it makes sense that 30y also follows higher,” one trader suggested. Also in the mix, yesterday's £650m Engie 30y deal is said to have impacted EUR 30y 3s6s basis, "With that flow out of the way, it leaves scope for the basis to come back a bit."    

    Elsewhere, Eurex-LCH basis has been widening across the curve this year. “What’s interesting is that both 10y and 30y have widened this year. Last year we saw a big decoupling between 10y (wider) and 30y (tighter) as bank ALM paid 10y and real money received 30y,” said one trader.

    The 10y Eurex-LCH basis began 2023 marked at 3.0bp and today was at 3.8bps while 30y Eurex-LCH has gone from -0.5bp to 1.65bp over the same period.

    One trader explained there has been a shift in the intensity of flows this year but not in the way some had anticipated. “Some positioned for recoupling between 10y and 30y going into 2023. They were expecting it to be driven by 10y tightening (bank ALMs paying less/receiving more). In fact, it has been driven by the 30y leg widening.”

    With regard to the driver of 30y Eurex-LCH widening, sources say it is not simply a case of real money receiving less/paying more in the ultra-long end.

    An additional factor has been bank ALMs being active further up curve and buying longer-dated bonds on ASW. “One theme we saw earlier this year was asset swap buying on some of the big long-dated EU and sovereign issues,” a trader noted.

    Such deals arrived in January and February and included sizeable EU 30y taps as well as Belgium and Dutch 30y issues. “It’s not a traditional maturity for asset swap interest, but at around 70bps pick-up on some issues there has been reasonable interest,” said one dealer.

    Today, European Union is tapping €6bn 2.625% 2048 Green bonds at swaps +68bps through BofA, DB, JPM (B&D), Nomura and Nordea. “Possibly that has given some support to the 30y Eurex-LCH basis,” suggested one trader, last marked +0.2bp wider at 1.65bp.

    In the background, the bearish momentum in euro fixed income continued with the 10y Bund future down a point and the 10y yield climbing 6.5bps to 2.29%. Bund asset swap spreads are tighter across the curve with last prices Schatz at 78.4bps (-3.3bp), Bobl at 74.6bps (-2.9bp), Bund at 72.1bps (-2.0bp) and Buxl at 32.7bps (-1.0bp).

    No news is good news - Commerzbank
    In a strategy note published today Commerzbank discusses funding conditions in the euro area and favours selling into any recoveries in the Bund. It writes:

    • “No meaningful participation in the USD operations at either the ECB or the SNB underscores that banks are not cut off in their dollar funding. This does not come as a surprise given the well behaved FX basis, but it still leaves question marks behind the unprecedented $60bn FIMA repo drawing from a foreign central bank that showed up in the Fed balance sheet last week.

    • "In that regard, we doubt the Eurosystem accounts for the drawing, also given the small FX reserve holdings in US Treasuries (the Bundesbank for example held less than €20bn per Dec 22 and the Eurosystem's total portfolio of non-EUR denominated bonds stood at €110bn per Feb 23).

    • "Also less concerning are the latest data on bank deposits that were released with the ECB's monetary developments. The yield-seeking record outflows from households and corporates seen in January slowed down in February. It is still interesting to note that bank deposits from all sectors declined, which means that monetary tightening is being felt on money supply and loan growth…

    • "Everything considered, while the bearish Bund correction at the start of this week may have gone too far too fast, we prefer selling into recoveries.”


    New issues

  • European Union is tapping €6bn 2.625% 2048 Greens at swaps +68bps through BofA, DB, JPM (B&D), Nomura and Nordea. Latest order book reported to be above €58bn.


  • SDG Paris plans a EUR 30y due May 2053 via BNPP, BofA, CA and Nomura.  

  • General Mills, a US food company, is pricing €750m 6y around swaps +110bps through Barclays (B&D), BNPP, Citi and GS.


  • Greece plans a EUR 5y benchmark due June 2028. Leads are BNPP, Citi, DB, MS, Nomura and Piraeus Bank.


  • NRW Bank is preparing a €1bn 10y Social bond via JPM, NatWest, LBBW and TD.

  • Stadshypotek is pricing EUR 5y Green Covered around swaps +20bps through Barclays, HSBC, Nomura and SocGen.

  • Sumitomo Mitsui plans EUR 3-5y Covered through GS, BNPP, CA, Barclays, UBS and Daiwa.

  • Ahold Delhaize is pricing €500m 5y Green around swaps +60bps through BNPP (B&D), BofA, DB, GS, ING and WFS.

  • Bank of Montreal is pricing EUR2bn 3.25y Covered at swaps +28bps through BMO, BNPP, Commerzbank, CA, HSBC and ING.

  • Harley Davidson Financial Services is meeting investors on 28 March ahead of the sale of EUR 3y through Citi, GS, Lloyds and Mizuho.

  • ANZ is pricing €1.5bn 2y Covered at swaps +15bps through ANZ, DZ, NatWest, SocGen and UBS.