EUR Swaps: ECB plays; Short spread caution

Bond chart 30 Jan 2023
Dealers report interest in ECB dates. Swap spreads are tighter but some remain cautious.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • ECB plays; Short spread caution 
  • Structural ASW tighteners - Barclays
  • New issues


    ECB plays; Short spread caution
    The Bund has so far traded a narrow range and was last near unchanged with the 10y yield marked at 2.365% while the Euro Stoxx was up by 0.6%.

    A recent theme has been activity in ECB €STR dates including two-way interest in May ECB as traders bet on whether the central bank opts for 25bp or 50bp at the next meeting. Earlier in today’s session May ECB got marked up to 3.22% (+3.4bp), around 10bps higher since the start of the week. €STR fixed at 2.899% on April 13.

    Spread plays have also seen interest, “It’s more likely to be 25bp in May and 25bp in June,” argued one trader. “So it could be attractive to sell a spread such as Jun vs Sep around 22bps given latest US inflation data coming suggests if there's any Fed activity in that period, it will be cuts.”

    Elsewhere, swap spreads have seen continued tightening as a few more new issues hit the screen. Last prices were Schatz at 72.5bps (-0.6bp), Bobl at 68.6bps (-1.2bp), Bund at 65.7bps (-1.6bp) and 30.9bps (-1.1bp).

    Still, some traders are cautious about entering spread tighteners, “It could be tempting to lean short spreads coupled with an outright long. You don’t really want to be betting against other gremlins lurking around - like Credit Suisse or SVB - so it's uncomfortable to be that short spreads, but certainly we do expect them to come in by 10-15bp over next couple of months.”


     Structural ASW tighteners - Barclays 

    Strategists at Barclays recommend holding structural medium-term tightness via Short Bund ASW vs €STR. The bank explains:

    • “With the financial stability backdrop showing increasing signs of stabilisation and core inflation proving sticky, hawks on the ECB’s Governing Council will likely feel emboldened to press for a significant acceleration in the pace of QT in the second half of the year (with Holzmann arguing in this direction in his commentary this week).

    • “This would add to the structural medium-term impetus for a push tighter in German ASWs in our view, especially against the broader backdrop of heavy net supply in EGBs. Elsewhere, we note that corporate/financial/SSA issuance volumes eased in March (with issuers likely seeking clarity on the banking sector situation), but have shown signs of picking up again more recently.

    • “On a medium-term basis, we think impetus for corporates to swap their issuance might potentially build from here, as focus on downside growth risks builds. On the other hand, we think scope for heavy mortgage-related paying flows in swaps should be fairly limited going forwards, given the collapse in euro area mortgage production in recent months.

    • All in all, we therefore think the balance of flows in swaps has room to tilt away from paying and towards receiving on a medium-term basis, adding to EUR ASW tightening pressures alongside QT/supply dynamics.”


    New issues

  • SNCF is pricing €1.25bn 10y Green at OATs +50bps through DB (B&D), ING, MS, Nomura and RBC.

  • CM Home Loan SFH is pricing €1bn 6y Covered at swaps +26bps through Barclays, Commerzbank, SocGen and UBS.

  • Rabobank is pricing €1.25bn 6y NC5 SNP at swaps +115bps through BofA, Citi, DB, JPM, Rabobank and SocGen.

  • Terna is pricing €750m 6y at swaps +70bps through BNPP, CA (B&D), Caixa, GS, HSBC, IMI, JPM, Mediobanca, MS, SMBC and UniCredit.

  • Japan Intl Cooperation Agency is holding investor calls from 17 April through Daiwa, Barclays, Citi and MS.