EUR Swaps: Caution amid US debt hopes; Fast money eyes long-end

Chart red green numbers 13 Jun 2022
Euro traders expressed some caution amid US debt hopes. Meanwhile fast money are said to be eyeing the long-end.

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  • Caution amid US debt hopes; Fast money eyes long-end
  • EUR yields appear cheap - Barclays
  • New issues


    Caution amid US debt hopes; Fast money eyes long-end
    The bearish direction in Bunds continued today with the 10y yield peaking around 2.55% (+3bps) earlier before drifting back to the 2.50% level. Meanwhile, latest newsflow on the US debt ceiling suggests politicians are moving closer to agreeing a debt limit with a two-year spending cap.

    “The momentum is quite bearish here and not many people looking to buy the dip,” felt one euro trader, noting the bank holiday Monday in some countries has made some traders cautious about positioning into the weekend.

    As for Bund spreads, “There’s possibly a bit of a bid as people look for some protection,” a trader felt with shorter-dated spreads a touch wider. Last prices vs 6mE were Schatz at 81.1bps (+0.7bp), Bobl at 74.4bps (+0.2bp), Bund at 68.6bps (-0.3bp) and Buxl at 29.6bps (-1.0bp).

    In euro swaps, the long-end has seen some re-steepening with 10s/30s last at -39.5bps (+2.25bp) having bear-flattened as much as -10bps over the past week. “Fast money have been looking at these levels and looking to initiate steepeners,” reported one trader.

    Elsewhere, the short-end of the curve has also seen a bounce with Euribors trading around +1-2bps higher while ECB Sep €STR has retreated by -2.0bps to 3.71% having gained over 10bps during the past week.


    EUR yields appear cheap - Barclays
    In its latest rates weekly Barclays finds that EUR yields appear cheap at current levels following the recent price action. The bank writes:

    • “The past week’s increase in EUR yields has left them towards the upper end of their recent ranges, with Bund yields having reached 2.5%. On a medium-term basis, these levels arguably provide an attractive entry point for longs… Bunds currently appear c.2 st dev cheap in our fair value framework based on long-term inflation/growth expectations.

    • “Ultimately, we would expect some of this cheapness to be corrected over time as focus shifts incrementally towards growth risks, in a context of tight financial conditions, flagging data momentum, and gradually declining headline inflation.

    • “Even so, the past week’s price action in gilts underlines the risks of initiating outright duration longs at this juncture, given sticky core inflationary pressures across developed markets. In this context, we see attractive risk/reward in trades that can benefit from a medium-term push lower in outright EUR yields, while offering some protection in any near-term bearish price action.”


    New issues

  • Allianz is pricing €1.0-1.25bn 30y NC10 Tier 2 sub around swaps +265bps through BNPP, BofA, Citi, DB (B&D) and HSBC.

  • Danfoss is pricing €500m (max) 6.5y SLB around swaps +100bps through BNPP (B&D), Danske, JPM and Nykredit.

  • Raiffeisen Croatia is pricing €500m 4y NC3 Senior Preferred around 8.25% through GS, RBI (B&D) and SocGen.