EUR Swaps: Front-end steepeners; ASW profit taking

Steep grades 15 Jun 2020
Some are eyeing front-end steepeners in euros while there are reports of ASW profit-taking.

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  • Front-end steepeners; ASW profit-taking
  • Euribor steepeners - NatWest
  • New issues: EFSF, Austria, KfW

    Front-end steepeners; ASW profit-taking
    The Bund has begun the week in a bearish direction and the 10y future last down 50 ticks while the 10y yield has gained 2.5bps to 2.465%. “The momentum has been bearish for the past couple of weeks and that’s continued today,” said one trader.

    In the short-end, Euribors are trading 1.5-3.5bps weaker while May ECB is steady around 3.216% having gained 10bps last week.

    “At the margin, we are quite bullish on the front-end and are therefore biased towards steepeners,” said one trader. However, one factor said to be deterring some clients from entering steepeners is the poor roll down, “They don’t roll down very well, so perhaps it is best to have a small spread position.” Also, some accounts are said to be looking at cross-country spreads such as long EUR vs USD in the red contracts.

    Elsewhere Bund swap spreads are a touch wider across the curve despite new issuance and selloff in the Bund. “They narrowed by a reasonable amount last week and I think we are seeing some short-term profit-taking. But medium-term the bias is still for lower spreads,” reckoned one trader.

    Last prices were Schatz at 71.1bps (unch), Bobl at 67.7bps (+0.2bp), Bund at 64.7bps (+0.3bp) and Buxl at 29.9bps (+0.5bp).


    Euribor steepeners - NatWest
    Strategists at NatWest recommend Euribor Sep23 vs Sep24 steepeners and explain:


    • “Fade the bearish inversion in the money market curve. This is a more aggressive on-hold strategy and we like it. The inversion in the Euribor curve has returned to close to the most extreme levels seen this year.

    • “Euribor curve inversion has had a bullish rates exposure this year because the front end is viewed as pinned. But in principle, there is a point where higher rates may cause the recession that brings cuts forward (the ‘destructive hikes’ theme). The market switches between these two thoughts and we have recently been drawn back into ‘destructive hikes’ bearish flattening mode.

    • “We push back strongly on the idea that policy rates will be the reason for a quick turn in the cycle. Of all the bearish trades at the moment (including our key bearish outright bund call), ERU3/U4 steepeners looks among the most attractive, we think.”


    New issues: EFSF, Austria, KfW

  • Austria plans to sell €3bn (max) new 6y Green and new 30y in the near future through Barclays, BofA, DB, Erste, JPM and MS.

  • KfW plans EUR long 10y through Barclays, BofA, LBBW and MS.


  • Cargrill is pricing €500m 7y at swaps +83bps through BNPP, Santander (B&D) and Standard Chartered.

  • Eurogrid GmbH plans EUR 7y at swaps +85bps through BNPP, Commerzbank, ING (B&D), and NatWest.

  • Gruenenthal plans €300m 7y NC3 through DB (B&D), GS, ING, RBC, UniCredit, Commerzbank and BNPP.

  • Muenchener Hypo is pricing EUR long 6y Covered at swaps +6bps through BayernLB, BNPP, Commerzbank (B&D), DZ, Helaba and Rabobank.

  • EFSF is pricing €4bn long 5y at swaps -7bps through Barclays (B&D), BNPP and MS. Latest order book size reported to be above €9bn.

  • Permanent TSB plans EUR 5y NC4 after investor calls on April 17 through BofA, GS, MS and UBS.

  • Porsche Automobil plans EUR long 5y after investor calls on April 18 through BofA, CA, Mizuho, MUFG, Santander and SocGen.

  • Kruk SA plans EUR €250m 5y NC3 after investor calls on April 17 through Arctic and DNB.

  • CABB Group plans EUR 5y NC2 fixed and 5y NC1 FRN after investor calls on April 17 through BofA, DB and GS (B&D).

  • LVMH is pricing €1bn 2.5y at swaps -7bps through Barclays, DB, JPM (B&D), SocGen and MUFG.