EUR Swaps: Deals price, gains fade; Bund tightener view

Chart red green numbers 13 Jun 2022
Bunds' gains faded this afternoon as USTs lost ground ahead of Wed's packed US session. Deals from Greece and the EU priced but spreads edged tighter.

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  • Deals price, gains fade

  • Citi still looks for Bunds to cheapen versus €STR  

  • New issues


Deals price, gains fade 

An early Bund rally alongside gains for USTs began to fade around midday and as Treasuries fell back, the German future drifted down from 131.58 to head for the close 14 ticks lower and just below 131, in modest volume of around 625K. The move was accompanied by the pricing of the EU's €4bn 30y tap with a another big, €73bn book. Elsewhere, BTP's underperformance against the core extended with the spread to 10y Bunds testing 177bps, its widest level for over a month.


Shorter in, comments by the ECB’s Villeroy had little impact and a weaker ZEW survey failed to prevent EURIBORs falling by 0-4 ticks in the whites and reds.


As a total of €8.5bn in SSA supply priced in the 15y to 30y bucket, 10s/30s swaps steepened a touch to -48.8bps (+0.8). Despite speculation about asset swap demand, spreads cheapened slightly to 65.2bps (-0.2) against the Bund and 29.6bps (-0.3) against the Buxl. 


In basis, with KfW printing a $4bn 10y today, EUR/USD rose again to test -28.5bps before edging back to -29.00bps, around 0.25bps higher on the day. Similarly, €STR-BOR 10y finished off the day’s lows at 13.2bps (-0.1) and 3s6s came down to 1.9bps (-0.1).


Citi still looks for Bunds to cheapen versus €STR   

Analysts at Citigroup this week stick to their previously recommended Bund spread tightener trade (against €STR) despite the spread holding in a roughly 40-50bps range since April, up from 35bps at the end of 2022.   


“ECB liquidity has plunged, EGB supply has soared – and repo rates have cheapened sizably to €STR. Yet, term spreads are wider ytd. We stick to our RX/€STR tightener view, but are aware that the unsupportive NCR for Germany in the second half of the year may prove not enough of a catalyst,” the bank says.


What richer €STR swap spreads tell Citi is that “either the market is expecting repo rates to richen from current levels, or that uncertainty around the future distribution of €STR has increased relative to uncertainty around the future distribution of repo rates.”


However, given the ongoing ECB balance sheet normalisation process – and its likely acceleration once the Governing Council completes the review of the operational framework – Citi finds this “hard to rationalize”. The bank continues:


“Given the still-relevant uncertainty over the neutral level of nominal rates in the Euro Area, as well as uncertainty about the future pace of ECB balance sheet reduction and its equilibrium size (and composition), we don’t find it appealing to position for a steeper swap spread curve, despite its historical flat level.”


“5y German swap spreads have failed to tighten back to pre-SVB levels – yet another reason for the latter to correct cheaper. We therefore remain in RX/€STR tighteners but are aware that the market may need a stronger catalyst than Germany’s unsupportive NCR in July more to re-anchor pricing to fundamentals.”


New issues: Telecom Italia, Greece 15y, EU 30y, Aareal, CaixaBank

  • Telecom Italia plans a EUR 5y at around 8%. Leads are BNPP, BBVA, CA, GS (B&D), JPM, Santander, SocGen and UniCredit.  


  • Landesbank Berlin is preparing a €250m long 4y Covered bond through BayernLB, Deka, Helaba and NordLB.


  • CaixaBank plans a €1bn 6y NC5 SNP at swaps +165bps and a €500m 11y NC10 SNP at swaps +195bps.. Leads are Barclays, Caixa, HSBC, SocGen and UBS.


  • TDF Infrastructure is preparing a EUR 5y via BNPP, CA, MUFG and SocGen after meeting investors on July 11.


  • Greece today priced a €3.5bn 15y 4.375% due Jul 2038 at swaps +125bps alongside a switch and tender offer for two GGBs, the €2.5bn 3.45% 2024 and the €3bn 3.375% 2025.  Books above €13bn via leads BNPP (B&D), BofA, DB, GS, JPM and NBG.


  • The EU today priced a €4bn tap of its EUR 2.5% 2052 via Barclays (B&D), BNPP, Citi, LBBW and NatWest at swaps +66bps. Books above €73bn.


  • Aareal Bank today priced a €500m short 3y Covered bond at swaps +13bps. Leads are Commerz, Danske, DZ, LBBW, UBS and UniCredit.


  • Baden-Wuerttemberg today priced a €500m 6y FRN at 6mE -15bps through Deka, DZ (B&D), Helaba, LBBW and NordLB.