EUR Swaps: US data hit Bunds; ASW curve drivers

Bond chart 30 Jan 2023
US data were the big mover in euro fixed income today after the German inflation numbers failed to make an impact.

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  • US data hits Bund and front-end 
  • Bund ASW flattener - JP Morgan
  • New issues

    US data hits Bund and front-end
    Slightly higher-than-forecast national inflation data weighed on euro fixed income first thing. Earlier, Spanish HICP printed at 1.6% vs 1.5% consensus then later German HICP printed in-line at 6.8%, up from 6.3% the previous month. Euro inflation swaps edged a bp firmer at the front end to 2.81% in 1y.

    Later, euro fixed income took a bigger hit after US GDP and initial claims data printed stronger-than-expected and the 10y Bund yield surged by 6bps up to 2.38%. Still, one euro dealer reckoned the Bund could be quick to rally back, “Seasonally, people don’t like running shorts through summer.”

    In the front end, Euribors have sold off since the US data and were last down by 6.5bps to 7.5bps. Meanwhile, red SOFR futures have been smashed by 15bps to 20bps.

    Across the swap curve, EUR 2s/10s stabilised today after the relentless flattening during the past couple of weeks that was partly triggered by stops on steepeners. Today 2s/10s was last marked unchanged around -86.5bps. In the long-end, 10s/30s has resumed flattening and was last 2.25bps lower at -46bps.

    Finally, Bund ASW are mixed with the wings outperforming and last prices Schatz at 74.1bps (+0.6bp), Bobl at 71.6bps (-0.4bp), Bund at 66.7bps (-0.3bp) and Buxl at 31.8bps (+0.3bp).

    In basis, 3s6s is being marked lower amid a slowdown in new issuance activity with 5y last 7.05bps (-0.4bp) and 10y at 2.6bps (-0.2bp). However, sources suggest there has been interest from fast money to pay 3s6s forwards in recent sessions.


    Bund ASW flattener - JP Morgan
    In its latest rates weekly strategists at JP Morgan recommend holding Sep23 Schatz/Bund swap spread curve flatteners. The bank explains:

    • “The 10y German benchmark swap spread is now trading broadly fair vs. fundamental drivers… a decent amount of the volatility in the decent quarter has been simply driven by the negative directionality to 10y benchmark yield level, in a move driven by the flight to quality dynamic initially and the unwinding of that move thereafter.

    • “However, in our short term fair value model we find that Bund swap spread is still trading 8-10bp too wide vs. benchmark yield, 10Y weighted peripheral spreads and funding rates, suggesting a short term tactical narrowing bias.

    • “Apart from medium term considerations, we believe that between now and mid-July, before the summer lull will start, the window will still be open for investors to raise cash via fixed rate issuance. Therefore, we believe that a tactical factor that should support a narrowing bias over the next 2-3 weeks could be the last leg of fixed rate issuance (typically swapped via receiving). Thus, we hold Sep23 Schatz/Bund swap spread curve flattener.”


    New issues

  • SNCF issued €300m 3.386% due Jul 2035 via Natixis.

  • KfW is tapping €1bn 0.75% 2029 at swaps -13bps through DZ and MS (B&D).

  • BPCE is pricing €500m (max) 5y Social around swaps +120bps through Natixis.

  • Polynt is pricing €300m 5y NC2 secured around 9.5% through GS and JPM (B&D).