EUR Swaps: US payrolls eyed; Pain trades

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Bunds have lost further ground as markets await US payrolls data. Sources discuss recent pain trades in the euro swap curve.

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  • US payrolls eyed; Pain trades
  • Hold ASW tightener - Commerzbank

    US payrolls eyed; Pain trades
    Bunds have lost further ground today with the 10y future trading below the 131 figure, last down 30 ticks, while the 10y yield is marked around 2.64% (+1.75bp).

    “It’s all about the US (non-farms data at 14:30 CET),” said one euro trader earlier, “The ADP and ISM data yesterday have thrown a real spanner in the works… But we are expecting something around the consensus figure.” The Bloomberg consensus stands at 230k versus 339k the previous month.

    Elsewhere, the front-end of the curve has seen a modest rebound with whites up by 0.5bp to 3.5bps.

    The swap curve is mixed with relatively small moves so far today. Last prices were 2s/5s flatter by -1.25bp at -61.75bps, 5s/10s steeper by +1bp at -20.75bps and 10s/30s steeper by +0.5bp at -51.5bps.

    Meanwhile, dealers have been reflecting on some of the popular trades that have taken a hit recently, “There were fresh stop-outs in long-end forward steepeners yesterday. You kind of feel sorry for those accounts that only just re-entered them again - they’d got to levels that were just too enticing as a carry trade. But it’s been another pain trade,” a source said. Yesterday saw 10s/30s collapse from -45bps to -52bps.

    The Bund asset swap curve continues to flatten with last prices Schatz at 73.2bps (+1.7bp), Bobl at 71.4bps (+0.7bp), Bund at 65.8bps (-0.1bp) and Buxl at 31.2bps (-1.2bp).


    Hold ASW tightener - Commerzbank
    In its latest rates weekly published yesterday, strategists at Commerzbank look at developments in collateral and repo market and recommend holding ASW tighteners. It writes:

    • “Following the unspectacular quarter-end, German GC is reversing the prior richening, cheapening to +5bp above €STR after having been rejected at €STR-10bp, in striking similarity to May/June. Turnover has been light, however, and the jury remains out if GC will now settle in a new range. With these moves, the transmission of the June hike is approaching 100% across the board.

    • “Spreads vs €STR are back at the ECB’s €STR-20bp ceiling. Our key specialness metric in contrast is stabilising after having hit the tightest level since the return of scarcity concerns late April. Yet, the stabilisation is largely driven by the cheapening of GC. The specialness distribution remains well-behaved.

    • “Swap spreads continue to oscillate in comparatively narrow ranges despite the renewed collateral cheapening, thus leaving a large gap between the two Bund premiums. The ongoing flattening bias of the spread structure sticks out though, as does the ongoing cheapening trend of our proxy for the collateral scarcity term premium. Taken together this suggests that safety premium is gradually receding and argues for a further outright normalisation.”