EUR Swaps: Bund resilient amid big supply; Profit-taking

Chart numbers candles 14 Jun 2022
Euro fixed income has held firm despite big sovereign supply hitting the market.

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  • Bund resilient amid big supply; Profit-taking
  • Richer 5s/10s/30s fly - JP Morgan
  • New issues

    Bund resilient amid big supply; Profit-taking
    The Bund future is trading around 20 ticks higher despite heavy sovereign supply hitting the market as Austria prices €3bn 6y Green and €2bn 30y via syndication.

    “The German data wasn’t great, although that does not seem to have been the main trigger (for today’s gains),” said one trader. Earlier, German ZEW Survey Expectations printed at 4.1 vs 15.6 Bloomberg consensus and down from 13.0 the previous month.

    In terms of flows, one source felt the market has been a bit slower this week with some desks still running thin after the Easter vacation.

    Still, one theme has been accounts profit-taking on trades that performed well over the past week, such as closing out long May ECB €STR and short Bund ASW positions. Today May ECB was last marked -1.2bp at 3.202% while Bund ASW prices were Schatz at 71.9bps (+0.4bp), Bobl at 68.1bps (+0.8bp), Bund at 65.2bps (+0.6bp) and Buxl at 29.7bps (+0.3bp).

    In swaps, 2s/5s at -38.5bps (+1bp), 5s/10s at -9bps (-0.75bp) and 10s/30s at -42.75bps (-0.5bp). "There's been some interest in long-end steepeners and that's been helping the curve a bit during the selloff in recent sessions," one trader said. 


    Richer 5s/10s/30s fly - JP Morgan
    In its latest rates weekly, strategists at JP Morgan hold a bias for further richening of EUR 5s/10s/30s swap fly. The bank writes:

    • “The 5s/10s/30s swap fly has richened around 15bp over the past few days and has essentially reversed the cheapening seen during the banking crisis in March. Our medium-term
      bias is for this fly to continue richening as we approach the end of the hiking cycle over the coming months.

    • “The 5s/10s/30s fly tends to richen until 2-3m before the last hike… The fly is cheap on an absolute basis versus historical averages… this primarily reflects the impact of last year’s large scale mortgage related paying flows in the intermediate sector… as these flows have declined the associated hedging activity has also declined and supported the overall richening of the fly. A continuation of this dynamic should richen the fly further.

    • "Our 10s/30s bull-steepening bias is also supportive of further richening of the fly… Historical analysis of the evolution of this fly going into last hike shows that this fly typically richens sharply until 2-3m before the last hike and then hovers around close to 0bp level for the next few months. Fundamentals argue for a repeat of this seasonality and could be further pronounced this time around given the overall cheap levels of the fly.

    • “We also highlight that this fly may appear too rich versus yields on a 2y regression lookback but we believe that this relative value is largely optical and an indication of a regime change. Therefore, we have a bias for further richening of the 5s/10s/30s swap fly.”


    New issues

  • Austria is pricing €3bn 6y Green at swaps -17bos with latest orders above €7.5bn and €2bn 30y at swaps +56bps with latest orders above €4bn. Leads are Barclays (B&D), BofA, DB, Erste, JPM and MS.

  • KommuneKredit plans EUR 20y through CA, HSBC, MS and Natixis.

  • KfW is pricing €3bn long 10y at swaps -7bps through Barclays, BofA, LBBW and MS.

  • Transurban Finance, an Australian toll-road operator, is pricing €650m 10y Senior Secured at swaps +115bps through BNPP, BofA (B&D) and SocGen.

  • ADIF-AV is pricing €500m (max) 10y Green around SPGBs +48bps through BBVA (B&D), Caixa, CA, HSBC and Santander.

  • MuniFin plans EUR long 7y through Citi, DB, GS and JPM.

  • Joint Laender plans €1bn 7y through Deka, Helaba, NordLB, Raobank and Raiffeisen.

  • Acciona Energia is pricing €500m (max) 7y Green at swaps +78bps through BBVA, BofA (B&D), CA, IMI, JPM, MUFG, NatWest and RBC.

  • National Bank of Canada is pricing €1bn 5y Covered at swaps +35bps through BNPP, HSBC, LBBW and RBC.

  • TSB Permanent is pricing EUR 5y NC4 around swaps +385bps through BofA, GS, MS (B&D) and UBS.

  • POP Mortgage Bank plans EUR 5y Covered through LBBW, Nordea and Swedbank.