EUR Vol: Grid edges lower in uninspired session

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The euro vol grid edged lower in an uninspired session traders confirmed today, with markets awaiting US CPI tomorrow for direction.

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  • Grid softer in light session

  • BNPP: Steepeners preferred as rates to range-trade

  • New structured issues


    Grid softer in light session

    Volsters struggled to pick out any stand out moments when pressed by Total Derivatives today with 3m10y and 3m30y both around 1 nvol softer, while 1y1y fell by 2 nvol as much of the grid edged lower.


    “Uninspiring” sighed one senior volatility dealer, as the Bund headed for the close around 30 ticks softer and testing session lows having traded in a narrow, 66 tick range. Asset swap spreads were equally constrained despite the arrival of heavy issuance (see EUR Swaps), EURIBORs lost 1-2 ticks after some familiar-sounding ECB speak, and the swap curve finished little-changed at -41.5bps (+0.5) in 2s/10s and -34.5bps (+1.0) in 10s/30s with the flies trapped.


    A handful of trades on the SDR included what looks like a EUR 10s/20s CMS 10y call in €250m at -20bps with a €1.65m premium and a implied level of 66bps (see SDR caps and floors).


    Modest volumes (link) of straddles included 3m10y at 354.1bps, 1y10y at 726bps, 9y10y at 1591bps, 1m30y at 392bps and 7y30y at 3107bps (link).     


    BNPP: Steepeners preferred as rates to range-trade

    In the research, BNP Paribas considers the outlook for rates in the wake of last week’s ECB decision. It concludes that while the peak is EUR rates is probably behind the market now, steepeners are to be preferred over outright longs:


      “The peak in EUR yields is behind us and rates can remain in a range as we head into the summer. As bonds are approaching the lows of their range – including front end swap rates – we would not enter structural longs now. We prefer 10s/30s steepener expressions, for example a 4y 10s30s CMS cap floor capped and continue to like holding a 6m10y 1x2 payer spread which captures well our range trading view.”


    New structured issues

    • JP Morgan sold a €6m 20y NC11 due Mar 2043. Callable once in Mar 2034 and pays a 4.52% coupon. Self-led.


    • Goldman Sachs launched a €30m (max) 5y NC2 due Jun 2028. Callable once in Jun 2025 and pays a 4% coupon. Self-led.


      For a summary of recent deals, please see EUR MTNs: EBRD callable; More inflation; Rare CMS 10y10y