EUR Swaps: Steeper as attractive levels eyed; EFSF on 2023 funding

Steep grades 15 Jun 2020
The euro swap curve has steepened amid reports levels could be looking attractive for new positions.

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  • Steeper as attractive levels eyed
  • EFSF on 2023 funding; Bund ASW mixed  
  • Closing out 10s/30s Bund steepener - BNPP
  • New issues

    Steeper as attractive levels eyed
    The Bund has drifted lower amid the US Independence Day holiday with the 10y future last down 40 ticks while the 10y Bund yield has increased by 2.5bps to 2.46%.

    Across the curve, the long-end has steepened up after facing renewed flattening pressure in recent days. The 10s/30s segment was last marked up by 2.5bps at -41bps having flattened as much as 8bps over the past week.

    “The long-end supply today has probably helped a bit,” said one euro trader, referring to Austria’s sale of €550m 30y alongside €750m 10y earlier today.

    Furthermore, he felt there could be some interest to enter steepeners, “There was a big flush-out and I think it's finally getting to levels when we hit -50bps that people look to re-enter,” he reckoned. Elsewhere, 2s/10s has also seen a reasonable steepening, last up 4.5bps at -83.75bps.

    Meanwhile, the front-end was steady with white and red Euribor gaining 0.5bp to 2.5bps.

    EFSF on 2023 funding; Bund ASW mixed

    Euro new issuance has continued to arrive this week despite the US July 4th holiday sucking some of the liquidity from markets. Among the larger deals, EIB is today pricing €5bn 10y EARN at swaps -4bps with latest orders above €41bn.

    Yesterday EFSF (AA/Aaa) priced €3bn 7y at swaps -2bps with orders above €5.4bn excluding lead interest from BofA, BNPP and TD. As a result, the issuer has now reached around two-thirds of its funding needs for 2023.

    To recap, the EFSF was created as a temporary crisis mechanism in 2010 to provide financial assistance to Ireland, Portugal and Greece. It no longer provides new loans to countries (this role is carried out by its sister organisation ESM), but continues to manage loan payments and rollover its outstanding bonds and still issues new EUR bonds as part of its debt management.

    As for yesterday’s deal, a source confirmed that the 7y issue was “particularly suited to bank treasuries”. In the market, buying on ASW from investors was reported and helped to provide support to spreads, while on the other side there was selling interest from fast money accounts.

    Today the Bund ASW curve is mixed with the spread curve flatter and last prices, Schatz at 72.2bps (+0.3bp), Bobl at 70.6bps (+0.1bp), Bund at 65.9bps (-0.5bp) and Buxl at 32.2bps (-0.7bp).

    Closing out 10s/30s Bund steepener - BNPP
    In a strategy note published today BNP Paribas closes out its 10s/30s Bund steepener after reaching its stop amid renewed hawkishness from central banks triggered flattening across the curve. The bank writes:

    • “Our 10s/30s German steepener has reached its stop and we therefore close the trade, although we still prefer 10s/30s to 2s/10s when it comes to positioning for the end of the cycle given the risk is still skewed towards more inversion in 2s/10s.

    • “Central banks renewed hawkishness has led to a rise in the market pricing of the terminal rate, but also delayed the end of the cycle, triggering a flattening of the curve.

    • “Instead of moving our stop or doubling down, we continue to run our 10s/30s in swap, and look to re-enter at better levels on the cash side in case of further flattening. Noting that according to BNP MarFA Macro framework the German 10s/30s is too flat.”


    New issues

  • CRH plc, an Irish manufacturer, is pricing €500m 4y at swaps +60bps, €750m 8y at +93bps and €750m 12y at +128bps. Leads are BNPP, Citi (B&D), Danske, Mizuho and NatWest.

  • EIB is pricing €5bn 10y EARN at swaps +4bps with latest orders above €41bn through BofA (B&D), BNPP, JPM and SocGen.

  • Iberdrola is pricing €850m 10y Green at swaps +60bps through Barclays, CA (B&D), Citi, DB, GS, JPM, SMBC and UniCredit.

  • Republic of Latvia plans EUR 10y through BNPP, GS and JPM.

  • State of Berlin plans EUR 8y through BNPP, Commerzbank, NordLB and TD.

  • Iccrea Banca is pricing €500m 5.5y Covered at swaps +68bps through Barclays, LBBW, Natixis, NordLB and UniCredit (B&D).

  • A1 Towers GmbH plans €500m (max) long 7y through Citi, Santander and UniCredit.

  • ANZ New Zealand plans €500m (max) 3y Covered through ANZ, Barclays, BNPP and UBS.

  • CA Public Sector SCF is pricing €500m 3y Covered at swaps +13bps through CA (B&D), DB, NatWest, Swedbank and UniCredit.