EUR Swaps: Rally, reversal, rally; €STR-BOR bid; Repo scarcity

Eurozone repos
A hawkish ECB inflation survey briefly scuppered a Bund rally that has regained ground since. Banks eye repo scarcity, ASWs and ECB deposits.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • Rally, reversal and €STR-BOR stand out

  • Banks on repo scarcity, asset swap spreads and ECB deposits

  • New issues: Reverse Yankees, Corporates and Covered Bonds



    Rally, reversal and €STR-BOR stand out

    While across the cluttered English Channel gilts remain anchored ahead of a likely 25bps hike by the BOE, in mainland Europe an early surge by Bunds and other core EGBs briefly ran aground after choppiness caused by an ECB consumer survey that showed inflation expectations for three years hence are running at 2.9% versus a previous 2.4%.


    This opinion sample was enough to send the 10y Bund yield up from 2.26% to 2.30%, before a recovery to 2.265%, -2bps by early afternoon.


    As one senior EUR swapper said late this morning “before the EU data the Bund (future) rallied 50 ticks for no discernible reason, just out of nothing. Then it came back somewhat, but it is still offered pretty much where it closed yesterday (since then it has edged 2bps lower again).”


    Looking across the fixed income multiverse so far today the swapper said that things were largely very calm, with ripples of activity popping up here and there. “There’s been a bidder in 10y €STR-BOR at 15.7bps and two way flow in 5y. It’s hard to say for sure why the 10y has been bid, at certain times that is an indicator of market stress but I don’t think that applies here.”


    “If anything,” he added, “the level has been depressed for a little while so it’s a reasonable level to buy it, but it is probably just flow -- hard to interpret.”


    In addition he said 10s/30s has been steepening but added there wasn’t significant flow behind those moves. All-in-all, said the swapper “it’s a quiet day so far after a few busy days and it may well stay like this except there is a lot of issuance out there waiting to be priced, so that may yet liven things up.”


    Shortly after noon in Paris, 2s/10s cash is -0.7bp at -28.8bps and 10s/30s is a touch steeper at 18.8bps. In swap spreads the Bobl is +0.6bps at 75.3bps, the Bund is +0.4bps at 70.7bps and the Buxl is -0.3bps at 33.9bps. 3s6s is a touch wider with 10y at 3.1bps (+0.2). 


    Banks on repo scarcity, asset swap spreads and ECB deposits

    Meanwhile in the research, with Schatz spreads better bid again at 83.0bps (+1.7) today, Commerzbank looks at the state of play:


      “As repo scarcity concerns are back, broad collateral richening rather than aggressive specialness sums up the state of play given the tight specialness distribution and good transmission of the May hike.


      “The outperformance of Schatz-spreads against the ASW-structure and our fair value model underscore that investors prefer to play it safe. ECB per-country data adds to speculation on potential Bundesbank remuneration adjustments and knock-on effects into DFA collateral provision. Combined with shaky risk sentiment we stay cautious on Schatz-spreads.


    Commerzbank also looks at the “massive” €105bn decline in the ECB's sovereign deposits last week, which it suggests that sovereign DMOs must have been “seeking other collateral/cash equivalents.”


    Elsewhere, Deutsche Bank also examines the latest data on sovereign deposits at the ECB. It warns that despite a “relatively orderly” adjustment to the new remuneration regime, there are several factors to monitor from here on:


      “In the near term, whether the estr-20bp ceiling holds as an equilibrium of sorts, whether pass-through of the latest hike is as good/better than previous ones and over time of course, the evolution of these deposits in conjunction with the  overall liquidity drain.”


    New issues: Reverse Yankees, Corporates and Covered Bonds


    Reverse Yankees

    • AT&T plans EUR long 2y, 8y and long 11y bonds at around swaps +65,135 and 170bps, respectively. Leads are CS, DB (B&D) and MUFG.


    • O-I Glass Inc. is preparing €500m 5y NC2 and $500m 8y NC2 bonds. Leads on the EUR tranche are CA, JPM and WFS (B&D).


    • Melbourne Airport plans a EUR 10y through BNPP, Citi and GS.



    • Deutsche Bahn is preparing a €500m 10y in the region of swaps +80bps. Leads are DB, HSBC (B&D), MUFG and UniCredit.


    • APRR plans a €500m long 6y at around swaps +80bps. Leads are BBVA (B&D), BNPP, CIC, HSBC, Mediobanca, MUFG, Sabadell and SocGen.


    • L’Oreal is preparing EUR 2y and 10y bonds at around swaps +10 and 30bps. Leads are BNPP, Citi, CA, HSBC, JPM (B&D), Natixis, Santander and SocGen.


    • Swedish telecom Tele2 is preparing a €500m 6.5y in the area of swaps +125bps through CA, DB, ING (B&D) and Nordea.


    • French metals group Eramet is preparing a €400m 5y Sustainability bond at around 7.25%. Leads are ABN Amro, CA, Citi, HSBC, Natixis and SocGen.


    Covered bonds and banks

    • SpareBank 1 Boligkreditt is preparing a €750m 7y Green Covered bond in the region of swaps +26bps through Deka, DB, ING and Nordea.


    • Danske Mortgage Bank plans a EUR short 4y Covered bond at around swaps +12bps via ABN Amro, BNPP, Danske (B&D), Natixis and UniCredit.


    • Bank fur Tirol is preparing a €250m 4y Covered bond. Leads are DZ, Erste, LBBW and RBI.


    • Bausparkasse Wuestenrot plans a €250m 4y Covered bond at swaps +32bps. Leads are DZ, Erste (B&D), Helaba and UniCredit.


    • Credit Mutuel Arkea is preparing a €500m 5y Social bond at around swaps +105bps through CA, CMA, LBBW, Santander, TorDom and UniCredit.


    • Abanca Corp Bancaria plans a EUR 3y NC2 at swaps +225bps. Leads are BBVA, DB, Santander, SocGen and UBS.



    • Republic of San Marino plans a €350m long 3y at around 6.75%. Lead is GS.


    • ESM yesterday sent an RfP to its banks for a possible deal.


    Recently priced

    • Deutsche Bank yesterday priced a €500m 3.5y and €500m 10y Covered bonds at swaps +5 and 20bps. Leads are Barclays, DB (B&D), IMI-Intesa Sanpaolo, Lloyds, NatWest, Scotia, UBS and UniCredit.


    • SEB yesterday priced a €1.75bn 2.5y Covered bond at swaps +5bps. Leads are Commerzbank, HSBC, NatWest, SocGen, Santander and SEB.