EUR Swaps: EU sales catch eye; Pre-CPI caution overdone?

EU Commission 11 Nov 2020
Three factors were at work today as Bunds traded in a fairly tight range to reach early afternoon a little lower in yield amid heavy issuance.

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  • EU sales catch eye; Pre-CPI caution overdone?

  • Commerz: ECB keeps Bunds on back foot

  • New issues: EU, Banks, Reverse Yankees, Corporates


    EU sales catch eye; Pre-CPI caution overdone?

    Three factors were visibly at work today as Bunds traded in a fairly tight range to reach early afternoon a little lower in yield versus yesterday’s close. The factors included the bearish pressures arising from sovereign and non-sovereign supply, coupled with a busy schedule of ECB speakers who have generally adopted a hawkish tone since last week’s meeting; a risk-off move in equities that has been slightly supportive of fixed income, and the dampening effect of pending US CPI data.


    Starting with supply and today saw the EU sell €5bn of 3y bonds at swaps -27bps as well as a €4bn tap of the 3% Mar 2053 at swaps +84bps. One active market participant in London this lunchtime said that “the 30y is coming 3bps cheap to the outstanding secondary market but 2bps richer than the offer price, so has basically gone OK. In the 3y we’ve seen one decent buyer after some early offers so that looks set fair too.” Asset swap spreads are about 1.0-1.5bps tighter vs 6mE amid today's heavy euro issuance despite potential for paying on the back of the EU deals.   


    Germany also popped up on the sovereign side selling €4.13bn of 2028s at 2.27%, after which it rapidly rallied to 2.24% and is currently 2.25%, -1.2%, as the 5y sector slightly outperforms other key curve points in a session that is fluctuating quite whippily within its fairly narrow range today.


    So far, say traders, ECB speakers have yet to impact the market so we can ignore them for now and red EURIBORs are 1-2 ticks stronger. The risk-off move in equities, which has exotically been attributed to a mixture of weak China data and problems in Swedish real estate, may have been supportive of a modest recovery from a weak start by EGBs but, as the above market participant said, it is hard to say for sure. The Euro Stoxx is -0.8% and S&P futures are also in the red ahead of the US opening.


    “The correlation between Bunds and equities is in a grey area,” he said. “It was strongly correlated when both were moving on ever-more-hawkish rate hike expectations. Then came the bank panic and the dynamic reverted to its traditional inverse relationship, but now it’s unclear how they are going to move in terms of each other (as the market awaits a stronger sense of when rates will actually peak etc).”  


    And finally there is CPI. Billed as the convenient focal point for this week by many, the above source agrees it has driven market activity in some sectors, but questions its broader significance. “People have wanted to get some new issuance business done ahead of CPI, especially in the USD market, that is true. But that said I actually doubt it will be that big-a-deal even if there’s a decent overshoot, because whatever the headline there is a high probability the FOMC will sit in its hands for the next few months while it waits to see where the dust is really going to settle (regards inflation).”


    So, summing up today’s price action so far, 10y Bund yields sold off to peak in late morning at 2.334%, following supply they rallied back to 2.29% and the benchmark yield is now -1bp at 2.31%, while in swaps 2s/10s is little-changed at -42.1bps while 10s/30s is a touch steeper at -34.7bps (+0.8).


    Commerzbank: ECB keeps Bunds on back foot

    Summing up a session that is somewhat lacking in conviction, strategists at Commerzbank note that “Bunds remain on the back foot as risk sentiment is resilient, supply is picking up and ECB members are by and large on the hawkish side.”


    It says that the “bulk of official and unofficial ECB commentary since Thursday's meeting suggests that most ECB members would like to deliver two more hikes to 3.75% if all goes according to plan, i.e. if economic growth recovers, the balance sheet contraction from accelerated €QT and TLTROs proceeds smoothly and bank lending does not fall off a cliff.”


    And Commerz noted that “even ECB chief economist Lane, who is a renowned dove, sounded not overly dovish yesterday, acknowledging that there is still ‘momentum in food and core inflation’. Market pricing remains just shy of pricing in two more rate hikes though, probably held back by the Fed rate cut that is still fully discounted by September.” 



    New issues: EU, Banks, Reverse Yankees, Corporates



    • The European Union plans a €5bn 3y at swaps -27bps and a €4bn tap of the 3% Mar 2053 at swaps +84bps. Books above €28bn and €51bn, respectively. Leads are BNPP, BofA, HSBC, MS (B&D) and UniCredit.


    • Plucky soccer minnow Republic of San Marino plans a EUR deal.


    Banks and Covered bonds

    • Deutsche Bank is preparing €500m 3.5y and €500m 10y Covered bonds. Leads are Barclays, DB (B&D), IMI-Intesa Sanpaolo, Lloyds, NatWest, Scotia, UBS and UniCredit.


    • Groupe Bruxelles Lambert (GBL) is preparing a €500m 10y through BNPP (B&D), Belfius, CIC, ING, KBC, Natixis and SocGen. 


    • NatWest is preparing a €1bn 5.75y NC4.75 at swaps +175bps. Leads are CA, DB, ING, Jefferies and NatWest (B&D).


    • CaixaBank is preparing a EUR 4y NC3 Social SNP at around swaps +170bps. Leads are   Caixa, Commerzbank, CA, HSBC and Natixis.


    • Banca Comerciala Roma is preparing a EUR 4y NC3 SNP through BNPP, Citi, Erste, ING and JPM.


    • Hamburger Sparkasse has priced a €500m long 5y Covered bond at around swaps +7bps. Leads are Commerzbank (B&D), Deka, DZ, HASPA and LBBW.


    • Sparkasse Hannover is preparing €250m 7y Covered bond. Leads are Erste, Helaba and NordLB. 


    • Hypo Vorarlberg plans a €500m long 4y Covered bond at swaps +27bps. Leads are Barclays, BayernLB, Erste, LBBW (B&D) and RBI.


    • UniCredit has priced a €750m 4y Covered bond at swaps +7bps through DZ, NordLB, SocGen, TorDom and UniCredit (B&D).


    • CFF plans a EUR 6y Covered bond at swaps +27bps through Barclays, DB, DZ, LBBW, Natixis (B&D), Nykredit and Scotia.


    Reverse Yankees

    • US travel company Booking Holdings plans €500m long 5y and €1.25bn 10y bonds at swaps +65 and 120bps. Leads are Citi, DB, HSBC and JPM (B&D).  


    • US packaging firm Crown European Holdings plans a €400m 5y at around 5.25% through BNPP (B&D), DB and UniCredit.


    • US glass and cable firm Corning plans €300m 3y and €550m 8y bonds in the region of swaps +70 and 120bps. Leads are GS and JPM (B&D).


    • Ford Motor Credit plans a EUR 5y at around 6.375%. Leads are Citi, Commerzbank, DB (B&D), IMI and NatWest.


    • American Tower plans €500m 4y and €500m 8y in the region of swaps +110 and 175bps. Leads are BofA (B&D), Ms, RBC, Santander and TorDom.



    • BP Capital Markets BV is preparing EUR 7y and 12y bonds at around swaps +100 and 145bps. Leads are Barclays, GS, HSBC (B&D), ICBC, Santander and SocGen. 


    • Swedish telecom Tele2 is preparing a €500m 6.5y through CA, DB, ING and Nordea after meeting investors from May 10.


    • German truck firm Traton is preparing €500m 2y and €500m 5y bonds at around swaps +80 and 125bps. Leads are CA, ING, JPM (B&D), LBBW, Mizuho and UniCredit.


    • French metals group Eramet is preparing a EUR Sustainability bond. Leads are ABN Amro, CA, Citi, HSBC, Natixis and SocGen.