EUR Swaps: Risk-off and ECB minutes

Equity Graph
A global risk-off backdrop combined with the release of the latest ECB minutes lent some support to euro fixed income today.

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  • Risk off and ECB minutes support rates 
  • Neutral Schatz ASW - JP Morgan
  • New issues

    Risk off and ECB minutes support rates 
    A global risk-off backdrop combined with the release of the latest ECB minutes helped to support euro fixed income today. Stocks are lower across the board with the Euro Stoxx last -0.4% while the Bund future was last up around 40 ticks.

    Minutes from the ECB’s March 16 meeting showed that members continue to expect interest rates to rise amid stubbornly high inflation. Reference was also made to the separation of policy between monetary tools and ensuring financial stability following the March credit crisis.


    Still, one trader felt the minutes added little to market colour, "To be honest, it seemed to reinforce what Lagarde said after the meeting, including the talk about separating out monetary policy while also ensure financial stability," he said.

    In the front-end, red Euribors rallied up to 5bps and have nearly recouped yesterday’s SONIA-driven losses. The euro swap curve has bull steepened after bear flattening yesterday. Last prices were 2s/5s at -40bps (unch), 5s/10s at -10.5bps (+1bp) and 10s/30s at -44.75bps (+1.75bp).

    Elsewhere, Bund asset swap spreads have continued this week’s widening trend, regardless of the direction in the Bund. Last prices were Schatz at 74.6bps (+2.6bp), Bobl at 70.6bps (+1.3bp), Bund at 67.6bps (+1.4bp) and Buxl at 32.7bps (+0.9bp).

    In basis, 3s6s has continued to widened despite a slowdown in new issuance activity. Still, a couple of big deals are set to price today including Sydney Airport €1bn 10y and BFCM €1.25bn 7y SNP. Last prices in 3s6s were 5y at 6.7bps (+0.4bp) and 10y at 2.4bps (+0.25bp).


    Neutral Schatz ASW - JP Morgan
    In its weekly rates research, strategists at JP Morgan explain why they stay neutral on the Schatz ASW spread. The bank writes:

    • “Looking in details at our fair value model, we note that the Schatz OIS swap spread is now only trading few basis points too wide vs. fundamental variable in our fair value model, where include short end volatility as explanatory variable. Schatz swap spread is trading only 3-4bp to wide in our fair value model where we include short end rates volatility as explanatory variable; neutral outlok but widening bias if narows below 50bp.

    • We continue to stay neutral on Schatz OIS swap spread at current levels but the view is to turn into a widening bias on retracement below 50bp. We prefer to hold at present widening exposure in Schatz via Schatz/Bund swap spread curve trade (see below), and also highlighted long in call spread as synthetic way to get swap spread widening exposure in case of further retracement.


    New issues

  • Sydney Airport is pricing €1bn 10y Senior Secured at swaps +135bps through BNPP, CA (B&D), RBC and SocGen.

  • BFCM is pricing €1.25bn 7y SNP at swaps +135bps through BNPP, CIC, JPM and MS.


  • French agency SFIL plans a EUR long 7y via Barclays, CA, LBP, MS and SocGen.

  • Porsche Automobil is pricing €750m long 5y at swaps +140bps through BofA, CA, Mizuho (B&D), MUFG, Santander and SocGen.

  • CABB Group is pricing €420m 5y NC2 around 8.75% and €250m 5y NC1 FRN around 3mE +525bps. Leads are BofA, DB and GS (B&D).

  • Banca Transilvania may sell €300m 4y NC3 this week through MS and ING.