EUR Swaps: ECB wake-up call; Long-end steeper

Badly acted crash 2 Feb 2021
Euro PMIs printed weaker-than-expected with some traders saying it could be a wake-up call for the ECB.

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  • ECB wake-up after PMIs; Long-end re-steepens 
  • Dutch pension fund hedging - BNPP
  • New issues


    ECB wake-up call after PMIs; Long-end re-steepens
    Euro fixed income has seen a sharp rebound today with the 10y Bund future rallying almost 1.5 points after weaker-than-consensus PMIs printed first thing this morning. “It’s perhaps a wake-up call… how much does the ECB want to risk pushing economies into recession,” pondered one euro trader earlier.

    In the short-end, white Euribors have rallied by 2.5bps to 9.5bps while red Euribors were last up by 11bps to 14bps.

    Elsewhere, the longer-end has seen a sharp re-steepening with 10s/30s last up by 4.5bps at -41.5bps after flattening around 10bps over the past week. Sources previously blamed a mix of fast money steepener positioning and real money receiving for the recent move.

    As for today’s re-steepening move, “I’m not sure if there is much interest from RV to enter steepeners just yet as they’ve only just been burnt,” reckoned one trader. "It's more likely being driven by the rally in the short-end," he reckoned. 

    Bund asset swap spreads are wider, "It's mainly a function of the rally," a trader suggested. Last prices were Schatz at 72.8bps (+2.3bp), Bobl at 70.4bps (+1.5bp), Bund at 65.8bps (+1.5bp) and Buxl at 30.7bps (+0.5bp). 


    Dutch pension fund hedging - BNPP
    In a strategy note published earlier this week BNP Paribas discusses the likely outlook for Dutch pension fund hedging. It concludes:

    • “We expect Dutch pension funds to continue rate hedging in a moderate fashion, possibly moving shorter on the curve.

    • “ABP’s hedge ratio trajectory will be an important driver of the industry average, in our view, given that the pension fund has been significantly increasing its hedge ratio of late and represents around a third of the industry’s assets.

    • “Although funding ratios remain healthy, if the market remains unchanged, they will be mechanically dragged lower, possibly reducing the impulse to announce further significant indexation later this year, we think.

    • “Now that the industry’s transition from defined benefited to collective defined contribution has been set in motion, we believe the asset mix of Dutch pension funds will become increasingly important to monitor going forward.”

    For more on recent Dutch pension fund reforms, see here and here


    New issues

  • CASTIL plans to sell €500m (max) 10y Sustainable after investor meetings on 27 June through BBVA and HSBC.

  • Credito Agricola plans to sell €300m 4y NC3 Social bonds after investor meetings from 23 June through CA, Santander and UBS.