US payrolls eyed
Euro fixed income has retreated with the 10y Bund future last down by 35 ticks as the market awaits US payroll data. “People are following this one closely for whether the Fed will go for a hike in June,” said one euro trader.
The Bloomberg consensus for change in US nonfarm payrolls is 195k vs 253k prior, "We are expecting something close to the consensus (195k) or maybe a bit lower," said one trader at a European bank.
The 10y Bund yield was last marked at 2.28% (+3bps) and remains around 25bps lower than a week ago when it was perched just above the 2.50% level. "Honestly, we've rallied so hard recently it's hard to see a big rally ahead of the weekend, but who knows..." a trader said.
In euro swaps, 10s/30s has eased back to -32.75bp (-1bp) after steepening by +10bps over the past three sessions amid reports of long-end paying interest. “It seemed to be in tandem with the rally and could be running out of steam a bit,” one trader felt.
Elsewhere, Bund ASW spreads are tighter across the curve with last prices Schatz at 78.9bps (-0.8bp), Bobl at 73.4bps (-1.3bp), Bund at 68.1bp (-1.7bp) and Buxl at 30.7bp (-1.1bp). “It’s possible that fast money might like receiving at some of these levels,” a trader suggested.
Close short Bund ASW vs UST - BNPP
In a strategy note published today BNP Paribas closes out its short Bund ASW vs UST position. However, the bank continues to favour short Bund ASW positions over the longer-term. The bank explains:
- “We close our long TY versus SOFR, sell RX versus Euribor 6m trade (June contract) trade. Developments in the US regarding the debt ceiling are less favourable for the long TY vs SOFR leg of the trade.
- “Meanwhile in the eurozone, our rationale for a cheapening in swap spreads, given elevated supply, QT, and declining liquidity, still holds. Even though we think the road to normalisation could be bumpy, we still like being positioned short Bund ASW over the longer-run, which we retain via our long 10y EU vs 10y Bund trade idea.
- “As we are near the end of the roll, and given the US environment turning less favourable for the trade, we prefer to close the box. Our overall net P&L on the trade since inception (across the March and June contract) is still positive, at +6.3bp, or +EUR126k. The loss is only on the June contract.”