EUR Swaps: Roll adds to frenetic tone; Widening risk

Tug of war
High volumes and relatively small moves in euro swaps marked the start of a session where futures rolls and headlines vied to be the market drivers.

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  • Roll adds to frenetic tone; Widening risk

  • Commerzbank: Schatz rich but await wider levels for tighteners

  • New issues:  Bosch, Werfen, Schleswig-Holstein


Roll adds to frenetic tone; Widening risk

While there is a lot of BIG news out there today (Germany’s unexpected first post- Corona recession, fluctuating US debt ceiling sentiment, renewed pressure on SONIAs), and trading in EUR fixed income has been lively today, directionality has not been strong as the market avoids knee-jerk moves in favour of a wait-and-see approach to some of these rolling headlines.


One EUR market participant in London said today that “it’s been a little bit frenetic so far this morning,” citing relatively high futures volumes thus far, but said “it’s less about headlines and more about a focus on futures rolls that has caused the pickup in activity.”


“The roll itself,” he added, “doesn’t have much bearing on the outright or the curve, but it might widen ASWs in the front end if repo spices up and supports richness in the short end. The debt ceiling story might also just grow in terms of being a risk-off story and that too might add widening pressure to Schatz ASWs, though right now they are just 0.5bps wider.”


The latest debt ceiling-related stories include Fitch placing the US on ‘credit watch negative’ and warnings yesterday from the House Speaker McCarthy  that Republicans and Democrats are far apart on talks to avoid default, tempered by a slightly more optimistic assessment by McCarthy prior to today’s opening in Europe.


As for the German GDP data (-0.3% in Q1 versus forecast unchanged) the above trader said its theoretically bullish connotations for the front end weren’t enough to stop a slight sell-off there as the market ponders the risk the US Fed’s capacity for further hikes has been under-priced by markets. Barclays strategists, like the market itself, refused to get too agitated by the GDP print, saying that it “reflects the hit that inflation had on household consumption, but the phase-out of government-financed pandemic measures was also a large drag. We think the economy will return to growth in Q2.”


So far today though the EUR fixed income market has been mildly soggy, rather than anything more drastic, with the soggiest spot being red EURIBORs, which are down 5-6 ticks versus unchanged in the front-end. Elsewhere, the Schatz yield is unch at 2.84%, Bobl is +1bp at 2.47%, Bund yields are also +1bps at 2.48% and the 30y is +1bp at 2.63%.


In swap spreads the Schatz ASW is currently +0.5bps at 81.7bps, Bobl is -0.2bps at 73.8bps, Bund is -0.6bps at 68.7bps and Buxl is -0.3bp at 30.5bps.


Commerzbank: Schatz rich but await wider levels for tighteners

With spreads mixed today but wider at the front end, analysts at Commerzbank review conditions in the repo and money markets. They find that broad-based collateral richening is “taking over again” but note that “extreme” specialness remains “a far cry from last summer. Commerzbank continues:


    ”Schatz-spreads continue to trade sticky. Speculation on Bundesbank remuneration adjustments look set to linger, but we doubt that the impact on Bund repos/specials will be as drastic as current ASW-premiums are discounting


    “The latest ASW-decoupling from the slide in implied vols to 11m lows - the other key factor in our structural fair value model - is leaving Schatz-ASW valuations at very ambitious levels


    “For now, we reiterate our cautious tactical stance on Schatz-spreads in view of safety demand but recommend using widening episodes above 90bp (invoice spread vs. 6m Euribor, corresponding to 65bp vs. €STR) to resume strategic tighteners.”


New issues: Bosch, Werfen, Schleswig-Holstein 

  • Bosch plans EUR 4y, 7y, 12y and 20y bonds in the area of swaps +60, 90, 120 and 175bps, respectively. Leads are BNPP, Citi, DB (B&D), Mizuho and UniCredit.


  • Spain’s Werfen (BBB-) is preparing a €500m 5y at around swaps +175bps. Leads are BBVA, BNPP, BofA, Caixa, Citi, DB, HSBC (B&D), IMI, JPM, Mediobanca, MUFG, Natixis, Sabadell and UniCredit.


  • Arval Service Lease plans a €500m 1.5y in the region of swaps +120bps via BBVA, BNPP (B&D), HSBC, ING, Santander and UniCredit.


  • Schleswig-Holstein plans a €500m 7y at swaps -4bps through BayernLB, DB (B&D), JPM, Rabo UniCredit.


  • Danfoss Finance II is preparing a €500m 6.5y Sustainability bond via BNPP, Danske, JPM and Nykredit. Expected Friday.


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


  • Vodafone plc yesterday priced two hybrids: a €750m 61.25y NC6.25 6.5% and a £500m 63.25y NC8.25 8.0%. Leads are BNPP, BofA (B&D), GS, MUFG, NatWest and RBC.


  • Agence France Locale yesterday priced a €500m 15y at OATs +44bps through DB, GS, HSBC (B&D) and NatWest.


  • DZ Hyp yesterday priced a €500m 10y Covered at swaps +16bps through BNPP, DZ (B&D), Erste, ING, LBBW and NatWest.


  • Dexia Credit Local yesterday priced a €1.5bn 5y at swaps +7bps through Citi (B&D), CA, JPM, Natixis and SocGen.