EUR Swaps: BOE eyed; Yield grabbers smash 10s/30s

Rolled flat 21 Jun 2021
All eyes are on the BOE, while earlier the Norges Bank and SNB both hiked rates. In euro swaps, 10s/30s sees more flattening.

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  • BOE eyed; Yield grabbers smash 10s/30s
  • Asymmetric 10s/30s risks - Barclays
  • New issues

    BOE eyed; Yield grabbers smash 10s/30s
    All eyed are on the Bank of England today with the Bloomberg consensus expecting a 25bps hike to 4.75% although a 50bps increase is not being completely ruled out following yesterday’s strong UK CPI data.

    Earlier, the Norges Bank hiked by 50bps to 3.75% (the Bloomberg consensus had been for a 25bps hike) while the SNB hiked by 25bps to 1.75% (meeting the survey consensus, although a 50bps hike had also been a possibility).

    Over in euros, the Bund future has lost around 45 ticks and is underperforming the gilt future.

    In euro swaps, one highlight over the past 24 hours has been resumed flattening in EUR 10s/30s. The curve was last marked at -45.5bps (-2bps) having been at -40bps earlier this week and above -34bps before last week’s ECB meeting.

    To recap, there had been talk a couple of weeks ago that 10s/30s steepeners could be a ‘pain trade’ given crowded fast money positioning, see here. However, the market appeared to stabilise amid interest from RV accounts to enter forward steepeners, see here. But since then, the weight of real money receiving has been one factor pushing the long-end flatter.

    “We’re seeing flattening everywhere, including in euros where 10s/30s has flattened 10bps recently as yield hunters are just grabbing longer-dated assets at around 2.50%-plus and stashing them away,” said one trader.


    Asymmetric 10s/30s risks - Barclays

    In its latest quarterly global outlook Barclays finds risks are skewed asymmetrically towards steepening in EUR 10s/30s. It writes:

    • “While persistent inflation could cause central banks to hike further and poses flattening risk to yield curves, there is also a chance that forward curves steepen if hiking cycles end and the market expects a bigger downturn.

    • “This is not our baseline economic call, but there are curve segments where risks are skewed asymmetrically towards steepening, such as EUR 10s/30s curve. Shorter-tenor curves such as 2s/10s can flatten significantly, given the risk of hawkish policy and the uncertain timing of any downturn, so any steepening would be likely to occur in longer-tenor curves such as 10s/30s…

    • ”Curves tend to steepen once the central bank has stopped hiking and the ECB, in our baseline scenario, appears closer to the end of its hiking cycle than other major central banks. Meanwhile, growth in the euro area has been disappointing…

    • “If more aggressive cuts beyond the peak policy rate get priced into the belly of the curve, this could steepen EUR 10s/30s. Conversely, if rates become less volatile, this would reduce the convexity benefit in the long end of the curve and also help steeping 10s/30s.

    • “Finally, the shape of the respective curves means that EUR 10s/30s has less adverse carry/roll compared with other major markets, which may make it cheap protection if there is a downturn.”


    New issues

  • Nasdaq Inc is pricing EUR long 8y around swaps +175bps through GS (B&D), JPM, BofA, Citi, MS, Nordea and SEB.

  • SAGESS is pricing €500m (max) 7y around OATs +64bps through BNPP, CIC, CA (B&D), HSBC and Natixis.

  • Nova KBM is pricing €300m 3y NC2 around 8% through BNPP, Erste (B&D), GS, OTP and UniCredit.