EUR Swaps: Rebound after German IFO; Sticking with steepeners

Line chart 25 Mar 2021
Bunds are higher after German IFO and having shrugged off price action in gilts.

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  • Rebound after German IFO; Sticking with steepeners
  • Hold long-end steeepeners - JP Morgan
  • New issues

    Rebound after German IFO; Sticking with steepeners
    Weaker-than-expected Germany IFO data at 91.7 vs 93.0 and a rally in USTs has lent support to the Bund with the 10y future last up 40 ticks, the 10y yield at 2.425% (-4.5bps) and Euro Stoxx down by -1.7%.

    Elsewhere, the gilt future headed in the opposite direction after stronger-than-consensus UK CPI data although has since rallied back off session lows and was last -40 ticks with the GBP curve sharply flatter as more BOE rate hikes were priced into the front end. “Treasuries are leading (the Bund) more than gilts… Britain is way behind the curve,” claimed one euro swap trader earlier.

    Meanwhile Bund asset swap spreads are wider across the curve, led by the shorter-end with last prices Schatz at 83.3bps (+2.4bp), Bobl at 75.0bps (+1.4bp), Bund at 69.9bps (+1.0bp) and Buxl at 31.7bps (+0.5bp).

    In basis, 3s6s is a touch wider with 5y last +0.15bp at 7.65bps, 10y +0.1bp at 3.1bps and 30y +0.1bp at -7.35bps.

    Elsewhere, the long-end has flattened with 10s/30s swaps last -1bp at -38bps having peaked around -30bps over a week ago. “This feels like a near-term pullback and most people are sticking with steepeners for the longer-term. It is just too flat for this stage of the hiking cycle,” claimed one euro dealer.


    Hold long-end steepeners - JP Morgan
    In its latest rates research JP Morgan recommends holding long-end EUR steepeners. The bank writes:

    • “At the long-end of the curve, we have been recommending 10s/30s swap curve steepeners, albeit via proxies on RV considerations. This mainly reflects our view that long-end steepeners are attractive alternative to our end-of cycle bullish duration stance.

    • “As we have discussed previously, 10s/30s steepeners tend to be profitable when initiated 3-6m before the last hike. We continue to hold long-end steepeners. On absolute levels, current valuations are significant flat versus historical averages at this point in the hiking cycle, assuming that the ECB delivers the last hike in July.

    • “Of course, we do not seek a convergence to historical averages over the near-term but see upward bias to the curve over the medium term. We acknowledge that this curve could exhibit some volatility along the way, for instance if there is some pension fund receiving flows at the ultra-long end given absolute level of 30y yields around 2.75% - its highest level over the last few years.

    • “However, medium- term path of least resistance for the curve should be steeper driven by lower yields as we get closer to the end of the ECB hiking cycle and eventual easing cycle. We have recommended expressing our steepening bias via leveraged forward curve steepeners such as 5y5y/15y5y and continue to hold this trade. The 5y5y/15y5y curve now appears broadly versus 10s/30s versus around 3bp too flat at inception.”


    New issues

  • Ile-de-France is speaking to investors on Friday 2 June to discuss its Green bond programme through CA.

  • Vodafone plc is pricing two hybrids: a EUR 61.25y NC6.25 at 6.625% and a GBP 63.25y NC8.25 at 8.125%. Leads are BNPP, BofA (B&D), GS, MUFG, NatWest and RBC.

  • Agence France Locale is pricing €500m 15y at OATs +44bps through DB, GS, HSBC and NatWest.

  • DZ Hyp is pricing €500m 10y Covered at swaps +16bps through BNPP, DZ, Erste, ING, LBBW and NatWest.

  • Novo Banco is pricing €400m 10.5y NC5.5 Tier 2 around 10.25% through BofA (B&D), Citi, CA, CS, JPM and SocGen.

  • Stora Enso Oyj is pricing €500m 3y around swaps +95bps and €500m (max) long 6y around swaps +145bps through BNPP (B&D), CA, Danske and SEB.

  • Dexia Credit Local is pricing €1.5bn 5y at swaps +7bps through Citi, CA, JPM, Natixis and SocGen.

  • Continental AG is pricing €750m 5y at swaps +95bps through DB (B&D), BofA, Citi and UniCredit.

  • Van Lanschot Kempen is pricing €500m (max) 3y Covered at swaps +21bps through BNPP, DZ, ING, LWWB and Rabobank.

  • NIBC Bank is pricing €500m (max) 2.5y SNP around swaps +310bps through ABN Amro, JPM, MS, SocGen and UBS.