EUR Swaps: UK CPI fuels sell-off; ASWs resilient

Chart green 14 Jun 2022
Higher than consensus UK CPI fuelled a sell-off in euro fixed income. The swap curve has flattened while Bund ASWs have been resilient.

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


  • UK CPI fuels sell-off; ASWs resilient 
  • CME reports €STR-SOFR basis trading
  • Tighter FRA/OIS levels - JP Morgan
  • New issues

    UK CPI fuels sell-off; ASWs resilient
    Higher than consensus UK CPI data helped to drag euro fixed income lower today with the 10y Bund future last down 50 ticks while the 10y Bund yield hit 2.50% (+2.5bps) for the first time since early March.

    In the short-end, Euribors sold off up to 10bps earlier while SONIA futures lost as much as 20bps. The May €STR ECB date is being marked at a new high, last +2.4bp at 3.233%.

    In swaps, sources suggest a combination of long-end receiving alongside swapped issuance has kept the flattening pressure on the euro swap curve. Last prices were 2s/5s at -40bps (-1bp), 5s/10s at -11bps (unch) and 10s/30s at -46.25bps (-2bps).

    In basis, 3s6s has continued to edge wider amid new issuance activity with 5y last +0.25bp at 6.45bps, about 1bp wider this week.

    Meanwhile, Bund asset swap spreads continue to widen despite the Bund selling off and swapped issuance.

    In a strategy note today, Commerzbank writes, “As specialness is stabilizing on cheap levels, the ASW decoupling is showing signs of cracks. Our structural model still renders Schatz spreads rich while the collateral scarcity term premium continues to trade on 'stressed' levels. Further collateral supply from faster €QT combined with receding implied vols argues for continued tightening pressure. We hence stick with our ASW tightener. In futures, net bases continue to be subdued as Eurex's switch mitigation measures appear to be working as intended.”

    Last Bund ASW prices were Schatz 73.6bps (+0.9bp), Bobl at 69.4bps (+0.5bp), Bund at 66.3bps (+0.6bp) and Buxl at 31.5bps (+1.0bp).


    CME reports €STR-SOFR basis trading
    In a release published today CME reports that its "€STR First" initiative has spurred strong liquidity and activity in €STR-SOFR basis trading. It writes:

      “The CME Group €STR First initiative, which offers enhanced liquidity and a market-wide fee waiver on all €STR futures trades through June, has yielded impressive results so far. In the first two weeks of April trading: Average top-of-book depth has expanded by over 200% across the front eight contracts. Average bid/offer spreads have narrowed by 21%. Trading activity has extended further out of the curve across outrights and spreads. €STR vs. SOFR inter-commodity spreads (ICS) are now trading regularly with 300 contracts filled.”


    Further details on CME €STR trading offerings can be found, here.


    Tighter FRA/OIS levels - JP Morgan
    In its latest rates weekly JP Morgan expects FRA/€STR bases to continue tightening. The bank explains:


    • “With the abatement of the banking crisis, the front-end FRA/€STR bases have continued to tighten over the past few days, in line with our expectation. Nevertheless, these bases still remain well above their February lows. We have a modest narowing bias on front-end FRA/OIS basis and remain cautious any flare-up of US debt ceiling debate. We have a bias towards modest further tightening in the front-end basis as the recent dynamics continue to reprice bases tighter.

    • “However, we do not believe that front-end bases will retouch their February lows. In our view, those tight levels were a reflection of relative decline in Euribor fixings which were itself driven by scarcity of short-term papers. With the euro system still flush with high excess liquidity, we expect relative scarcity of short-term paper to remain. This will keep pressure towards tighter spreads.

    • “On the other hand, with the decline in banking risks, the probability of the ECB offering further liquidity operations to banks, as was indicated by the ECB, is now low. This should be reflected in relative wider spreads, especially as around €480bn of TLTRO-III operations will mature in June with only around €200- 250bn of that to be potentially rolled into 3M LTRO operations under ECB’s full allotment operation.

    • “Further, concerns around US debt ceiling is also likely to limit further tightening of these bases. Therefore, while we retain a tightening bias in front-end FRA/OIS, we acknowledge that upside to this rather limited from current levels.”


    New issues

  • KommuneKredit is pricing €500m 20y at swaps +49bps through CA, HSBC, MS and Natixis.

  • Sydney Airport may sell EUR 10y on Thursday through BNPP, CA, RBC and SocGen.

  • MuniFin is pricing €1bn long 7y at swaps +5bps through Citi, DB, GS and JPM.

  • Joint Laender is pricing €1bn 7y at swaps -4bps through Deka, Helaba, NordLB, Rabo, RBI and TD (B&D).

  • Jyske Bank is pricing €500m (max) 5.5y NC4.5 SNP at swaps +175bps through Citi, JPM, Jyske, Santander and UBS.

  • CIMIC Group plans EUR 5y after investor calls on April 20 through HSBC, IMI, Natixis, RBC, SMBC Nikko and SocGen.

  • Porsche Automobil may sell EUR long 5y on Thursday through BofA, CA, Mizuho, MUFG, Santander and SocGen.

  • POP Mortgage Bank is pricing €250m 5y Covered at swaps +43bps through LBBW, Nordea and Swedbank.