EUR Swaps: Sintra talk; Banks say Buba bailout unlikely

ECB Lagarde 9 Jun 2022
All eyes were on ECB President Lagarde's speech in Sintra earlier. Bank strategists discuss the likelihood of a Buba bailout.

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  • ECB Sintra talk
  • Downward adjustments to Q3 Bund supply
  • Bundesbank bailout unlikely - Commerzbank
  • New issues

    ECB Sintra talk
    ECB President Lagarde’s opening speech in Sintra failed to ignite fireworks in the market despite some hawkish remarks as she said, “It is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached.”

    Her comments initially wiped around 40 ticks off the 10y Bund future, “It moved the market while I was long,” said one market participant earlier when asked if her speech had been market-moving. However, the Bund has since rallied back with the 10y future trading near unchanged and 10y yield marked around 2.30%. “It’s a quiet day otherwise,” it was suggested.

    Across the curve, flattening across the 2s/10s segment of the curve appeared to have stalled earlier, “We’ve got 50bps priced in by the end of the year,” one trader noted. Since then, the market has resumed edging slightly lower and was last at -86bps (-1.75bp) and has now flattened about 20bps over the past two weeks.

    Elsewhere, the new issuance pipeline is ticking over with Bank of Ireland and RTE among the names working on new deals. Bund asset swap spreads are wider led by the front-end with last prices Schatz at 74.9bps (+1.2bp), Bobl at 72.2bps (+0.5bp), Bund at 67.4bps (+0.7bp) and Buxl at 32.0bps (+0.6bp).


    Downward adjustments to Q3 Bund supply
    Germany’s DFA today released its updated Q3 calendar for Bund supply. Planned borrowing will be reduced by €14bn, split between a €4bn reduction in capital markets and €10bn reduction in money markets.


    Of the €4bn reduction in capital markets, the adjustments will see the: (i) 15y tap reduced by €0.5bn to €2bn on 2 August (ii) 5y tap reduced by €1bn to €4bn on 8 August (iii) 2y tap reduced by €0.5bn to €5.5bn on 15 August (iv) 7y tap reduced by €1bn to €3bn on 23 August (v) 10y tap reduced by €1bn to €4bn on 27 September.

    Further details can be found here


    Bundesbank bailout unlikely - Commerzbank 

    In a strategy note published today Commerzbank describes yesterday’s news reports of a possible Bundesbank bailout as “a catchy headline” but a “far cry from becoming reality”. The bank explains:

    • “A possible ‘Bundesbank bailout’ has created headlines at the start of this week, with various media saying the government auditors want the government to recapitalise the central bank. This makes for a catchy headline, but is probably a far cry from becoming reality. It is not new that the Bundesbank and other central banks are facing losses on their QT holdings - and the losses are increasing with every rate hike…

    • “What is new is that the Federal Court of Auditors has apparently written a letter to the Budget Committee and is quoted as saying: ‘It would be expected that the state would recapitalise the Bundesbank via the budget.’ This is not a big surprise either, after all it is the auditors' job and they have been complaining about the budget risks of QE for some time.

    • “Importantly, the auditors cannot give orders to the government. The finance ministry already came out with statements that it disagrees with the auditors' conclusion. While there are different legal opinions on the obligation to recapitalise the central bank and how long it could operate with negative equity, the government will probably refer to academic legal papers that suggest no recap is needed…”


    New issues

  • RTE is pricing EUR 12y around swaps +110bps through Barclays, BNPP (B&D), CA, CIC, Natixis, NatWest, SMBC and SocGen.

  • State of Hesse is pricing EUR 10y Green around swaps flat through CA, Deka, DB, ING and UniCredit (B&D).

  • Bank of Ireland is pricing EUR 8y NC7 Green around swaps +225bps through BofA, Citi, Davy, JPM, MS and UBS.

  • KPN NV is pricing EUR 8y around swaps +120bps through ABN Amro, BNPP (B&D), GS, IMI and ING.

  • ICO is pricing €500m (max) long 5y Social around SPGBs +20bps through BBVA, CA, HSBC, Santander and UniCredit.

  • Banco BPI is pricing EUR 5y Covered around swaps +60bps through Caixa, Commerzbank, CA, SocGen and UniCredit.

  • Credito Agricola is pricing €300m 4y NC3 Social around 8.375% through Citi, CA, Santander and UBS.