EUR Swaps: Short-end bounce; ECB dates interest

Short-end bounce; ECB dates interest
The bearish momentum in euros appeared to stall today with the 10y Bund future last trading near unchanged. Still, one trader argued there is still interest to scale into short positions, “The general tone since Friday’s US payrolls data has been bearish and better paying in swaps,” he reported.

Elsewhere, the short-end has bounced with Euribors trading 4-5bps higher after a Reuters sources story said ECB members are converging towards a 25bp hike at the next meeting. However, other ECB speak has been mixed with Germany’s Nagel expressing concern about high core inflation while Belgium’s Wunsch said it was too early to determine the size of the May hike.

One trader reported decent activity in ECB €STR dates over the past couple of sessions, including more fast money interest to pay the May ECB dates earlier today. After rising for four sessions in a row May23 got to 3.187% at today's morning high but has since slipped back a touch to 3.182%. ECB forwards now peak around Nov23 at 3.6105% versus the April 12th €STR fix of 2.898%. 

Swap spreads are tighter as new issuance continues to hit the screens including some decent-size deals from banks (see below). “It’s been pretty well absorbed from accounts on the other side,” a trader said. Last prices were Schatz at 73.9bps (+0.3bp), Bobl at 70.1bps (-0.7bp), Bund at 67.2bps (-1.5bp) and Buxl at 32.2bps (-1.3bp).

In basis, 3s6s has been edging wider as some deals hit the screens with some of the big deals from banks “likely swapped” to 3m. Today 5y 3s6s was last +0.5bp at 5.85bps and 10y 3s6s +0.25bp at 1.5bps.

No dark clouds for EGB spreads - SocGen
In a strategy note Societe Generale sees no dark clouds on the horizon for EGB spreads. The bank explains:

• "Country spreads have remained relatively stable and range-bound since mid- January, especially the 10y BTP-Bund spread, which has traded in the 180-190bp range. Even the recent banking sector turmoil and volatility in rate markets have had no noticeable impact on EGB spreads.

  
  

• “As we approach the end of the tightening cycle, we have entered a new regime with a decoupling from rising terminal rates and lower spread volatility. We expect country spreads to remain range-bound in the coming months, but there could be some hiccups linked to: 1) a durable correction in high-risk assets, 2) the upcoming June TLTRO redemptions, 3) the relative supply dynamics, 4) a refocus on politics, and 5) a clear deterioration in fundamentals.

  
  

• “Looking at the 10y BTP-Bund more specifically, we expect more widening pressure in 2Q23 than in 2H23. Indeed, 2Q net supply is set to be positive and much higher than in Germany and June TLTRO redemption could lead Italian banks to sell BTPs or refinance part of their BTP holdings. So, it could push the BTP-Bund spread 10-20bp wider, in our view. In 2H23, net supply should be negative, and we do not see political trouble materialising, so the BTP-Bund is likely to be ‘rangy’.

  
  

• “So overall, we see no reason for the big spread blow-ups we used to see in the 2010s, but we remain cautious for later in 2023. The ECB should be done with rate hikes, it will probably have stepped up QT, so the market focus will likely shift to the economic slowdown and deteriorating fundamentals.”

   

  
  New issues
  

• Generali is pricing €500m 10y Green Tier 2 at swaps +240bps through BNPP, Barclays, BBVA, Commerzbank, Mediobanca, Santander and SocGen.

   

• The EU has sent an RfP today for further funding needs. That follows an ESM/EFSM RfP sent earlier this week.

  
  

• NWB Bank is pricing €1.5bn 10y Water bonds at swaps +11bps through DB (B&D), JPM, Natixis and SEB.

  
  

• Hera SpA is pricing €600m 10y at swaps +135bps through BNPP, CA, IMI, Mediobanca, Santander and UniCredit (B&D).

  
  

• Credit Agricole is pricing €1.5bn 8y at swaps +95bps through itself.

  
  

• Cargill Inc plans to sell EUR 7y after investor calls on 14 April through BNPP, Santander and Standard Chartered.

  
  

• Commerzbank is pricing €1.25bn 6y Covered at swaps +10bps through ABN Amro, BBVA, Commerzbank, LBBW, NatWest and Scotia.

  
  

• ABN Amro is pricing €1.5bn 2y Senior Preferred at swaps +35bps and €1.25bn 5.5y Senior Non-Preferred at swaps +135bps. Led by ABN (B&D), BNPP, CA, MS, Santander and UBS.

  
  

• Op Mortgage Bank is pricing €1bn 5.5y Covered at swaps +16bps through Helaba, HSBC, NordLB, Op and SocGen.

  
  

• RLB Noe-Wien is pricing €500m long 5y Covered at swaps +33bps through ABN Amro, Citi, CA, DZ, LBBW and RBI.