Big syndicated supply arrives
Reasonable two-way activity was “likely” a factor in keeping the Bund largely rangebound during today’s session, according to one euro trader. The 10y future was last 15 ticks lower while the 10y yield was marked around 2.385% (+1.5bp).
Another busy session of supply has included France’s sale of €3bn OATi-39 via syndication with latest orders above €21.5bn while Spain’s €13bn long 10y syndication has reportedly drawn orders above €85bn.
Bund asset swap spreads are wider, led by the front-end of the curve with last prices (vs 6mE) Schatz at 74.0bps (+2.5bp), Bobl at 70.5bps (+1.0bp), Bund at 66.1bps (+1.0bp) and Buxl at 28.9bps (+0.5bp).
“There’s been some asset swap demand, but maybe not on the same scale we saw earlier this year,” felt one euro trader.
In swaps, one trader noted the long-end of the curve has been quick to re-flatten after yesterday’s steepening move with 10s/30s last -2bps at -35.5bps. “We moved quite sharply (steeper) yesterday and that seemed to be driven by the syndication news although I’m not necessarily sure it was a complete surprise,” he said.
Elsewhere, 3s6s basis was described as “a bit volatile” with 10y last marked -0.3bp at 2.65bps. “There’s a lot of supply about and it can easily move things intra-day,” a source pointed out.
Eurex plans EU liquidity pool for Euro STIRs
Today Eurex announced plans to expand its Partnership Program for interest rate swaps to include STIR derivatives, see Eurex's plans for an EU liquidity pool for Euro STIRs.
As part of its STIR Partnership Program, Eurex will ‘re-launch’ EURIBOR futures and options in Q4 2023. It is understood this means that in addition to its current offering of listed EURIBOR futures and options, Eurex will work alongside liquidity providers to supply a ‘live run’ of EURIBOR futures and options prices to be matched via a CLOB system (as already exists for €STR futures and options), thus creating a liquidity program whereby listed and OTC markets can co-exist more closely.
Further details of the Eurex Partnership Program can be found here.
EU sells bonds, wants to improve liquidity
The EU yesterday sold €3bn 7y bonds and €4bn 20y bonds via syndication with both taps seeing big order books of €31.2bn and €44.7bn at swaps -3bps and +52bps, respectively.
Swappers away from the leads (Danske, DB, GS, JPM and SocGen) reported two-way flows but spreads finished the session a touch lower with ASW demand offset by new issue swapping.
Allocation data for the transactions confirms plenty of interest from (potential) asset swap accounts with bank treasuries taking 31% (around €930m) of the 7y and 37% (€1.48bn) of the 20y – both above the long term average for bank treasury takedown of EU deals of around 23.5%. Central banks (for the 7y) and fund managers were the other major categories of investor.
Next up, the EU is expected to release its funding plan for H2 2023 later this month after reaching 88% of its €80bn issuance goal for H1 2023 (see here) following this week’s deal, and with auctions planned to June 12 and June 26.
Further out, the EU Commission is “preparing a framework for providing investors with pricing quotes on electronic platforms” and is building a facility to support the use of EU bonds in repo, to be implemented by "early 2024.”
It also launched a survey today (see here), to run for a month, with the aim of enhancing the liquidity of EU bonds and allowing them “to trade and price in ways similar to EGBs”. The EU faces expected borrowing needs of around €150bn a year until 2026 plus rollover of existing issuance.
The questions in the survey, prepared with the help of BofA, CA and HSBC - cover a range of topics including:
- Ranking the importance of secondary and repo market liquidity when buying EGBs
- Comparisons between EU and EGBs with respect to primary dealers
- The importance of trading platforms and a repo facility
- EU bonds treatment as collateral
- The EU impact of debt outstanding and volume of issuance on liquidity and performance
- Auctions versus syndications for issuance
- The importance of inclusion in government bond indices and the impact on investment
- Whether to move to pricing against own curve or EGBs (rather than swaps)
- The need for a futures contract
- Benchmark choice