EUR Swaps: 50bp still possible? ASWs tighter, 3s6s eases

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Market participants say a 50bp ECB hike is not off the cards. Elsewhere, Bund ASWs tighten while 3s6s basis eases from recent highs.

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  • 50bp still possible? 
  • The return of scarcity? - Commerzbank
  • New issues

    50bp still possible?
    Another mixed bag of data included the ECB’s bank lending survey reveal that credit conditions are now the tightest since 2009. Elsewhere, euro core HICP printed at 5.6%yoy Bloomberg consensus, down from 5.7% the previous month, while headline HICP came in at 7.0%yoy, slightly higher than both the consensus and previous month of 6.9%. Cash breakevens are 2-4bps firmer at the front end of the euro inflation curve in the wake of the data. 

    “Most people are still leaning towards a 25bp hike. But 50bps is not off the cards and you get the odd person still favouring it,” said one euro dealer, “The ISM data (yesterday) was strong and raises the possibility of another hike from the Fed in June,” he added. Elsewhere, the RBA delivered a hawkish surprise overnight with a 25bp hike, see AUD Swaps: RBA shock

    Amid choppy price action after the May Day holiday, euro fixed income is trading weaker with the 10y Bund future last down 70 ticks while Euribors have sold off up to 8bps. The May ECB €STR date was last marked +0.5bp at 3.183% having peaked above 3.20% on the screens earlier today.

    Away from the data, new issuance is ticking over and includes the banks BBVA, Nordea and Standard Chartered across the 3y to 8y sector. In basis, 3s6s has eased back from recent highs with 5y last -0.05bp at 7.1bps, “It’s still quite elevated,” one trader observed.

    Bund asset swap spreads are narrower after confirmation yesterday that JPM will buy First Republic, with some help from the FDIC. Last prices were Schatz at 77.9bps (-1.7bp), Bobl at 72.3bps (-1.9bp), Bund at 68.1bps (-1.9bp) and Buxl at 33.4bps (-1.7bp). Note there had been speculation about possible widening in Bund ASWs following recent changes to Eurosystem deposits.  


    The return of scarcity? - Commerzbank
    Strategists at Commerzbank discuss changes to remuneration of deposits and possible widening risks to Bund ASWs. It writes:

    • “The remuneration of sovereign deposits in the Eurosystem will be reduced to a maximum of €STR-20bp as of today. The Bundesbank has decided to remunerate deposits at the ECB cap of €STR-20bp from 1 May, but had previously been paying 10bp less than the ECB ceiling and will "examine in due course whether a further reduction is appropriate".

    • “This has triggered speculation about changes in the DFA repo behaviour and that specials would either have to richen again or could become scarce on lower DFA lending as a consequence.

    • “The latest richening of our key specialness metric (spread of 10 richest ISINs vs GC and €STR) to €STR-30bp fits the picture. Combined with shaky risk sentiment we therefore reiterate widening risks for Schatz spreads.”


    New issues

  • Fluvius System Operator is pricing €700m 10y at swaps +95bps through Belfius and BNPP (B&D).

  • Standard Chartered is pricing €1bn 8y NC7 at swaps +185bps through ABN Amro, CA, ING, Lloyds, Santander and Standard Chartered (B&D).

  • Carrefour is pricing €500m (max) long 7y SLB at swaps +85bps through GS, HSBC (B&D), Natixis and SocGen.

  • Sparkasse Pforzheim Calw plans €500m (max) 6y Covered through Commerzbank, Deka and Helaba.

  • Nordea Bank is pricing €1bn 5y SNP at swaps +110bps through BNPP, Citi, DB, GS and Nordea.

  • Schleswig-Holstein plans EUR 5y through Commerzbank, DZ and GS.

  • BBVA is pricing €1bn 3y NC2 at swaps +67bps through BBVA (B&D), DB, HSBC, SocGen and UBS.