EUR Swaps: Yields drop after mixed HICP data

Tyre inflation 9 Jul 2020
Mixed euro HICP prints sent euro yields lower today as traders say the risk of a 50bp hike has eased.

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  • Yields drop after mixed HICP data
  • ECB QT and ASW tightening - Barclays
  • New structured issues

    Yields drop after mixed HICP data
    Mixed euro HICP figures sent euro fixed income higher today, “There was a risk of everything printing higher and pushing the ECB towards a 50bp hike but that seems less likely now,” felt one trader.

    Among the inflation data, French HICP came in higher at 6.9% vs 6.7% consensus. However, Spanish was 3.8% vs 4.1% while German regional figures showed a slower pace of increase compared to the previous month.

    The May ECB €STR date was last marked -2.9bp at 3.184% having peaked around 3.233% on the screen last week. €STR fixed at 2.90% on April 27.

    Elsewhere, Euribors rallied around 10bps before easing back a touch. The Bund future popped a point higher but has since retreated and was last up about 75 ticks while the 10y yield was marked 2.385% (-7.5bps). The Euro Stoxx was -0.75%. 

    One area garnering interest recently has been widening in Bund asset swap spreads. Today the front-end of the curve continued to outperform with the Schatz ASW last 2.7bp wider at 79.1bps. Further out, the Bobl was 72.7bps (+0.3bp), Bund at 68.7bps (-0.6bp) and Buxl at 34.2bps (-0.3bp).


    "For sure, positioning is still for shorts (in ASWs) across the belly region... probably people are cutting back but we haven't seen a big exodus so far," reported one trader. 


    ECB QT and ASW tightening - Barclays
    In its latest rates weekly Barclays looks at the possibility of a change in QT and its impact on ASWs. The bank writes:

    • “Another area of focus at next week’s meeting will be the pace of Quantitative Tightening (QT). As a reminder, over March-June the ECB is rolling of c.€15bn/mth in APP redemptions (c.50% of monthly redemptions).

    • “Relatively hawkish GC members such as Nagel and Holzmann have been voicing their support for an acceleration in the pace of QT after June in recent weeks, given the stickiness of core inflationary pressures. The ECB may wait until June before providing a detailed formal announcement on the pace of QT in H2 (so as to obtain more information on the state of financial conditions and the real economy).

    • “Even so, this would not necessarily preclude some high-level hints on the outlook for QT next week (eg, a broad indication that the pace is likely to be accelerated at the June meeting). The steady expansion of the ECB’s balance sheet over 2015-22 contributed to a structural trend of German ASW widening over that period; conversely, we think an accelerating QT pace after June could encourage a further push tighter in German ASWs from current wide levels.

    • “In this context, we are sticking with our shorts in Bund ASW vs ESTR as a medium-term trade (entry: 55bp, current: 46bp).”


    New issues

  • TDC is pricing €500m 8y SLB Senior Secured around swaps +340bps through BNPP, HSBC (B&D), ING and SEB.

  • SEB is pricing EUR 5y Senior Preferred around swaps +100bps through Barclays, BNPP, BofA, DB and SEB.