EUR Swaps: Rally extends; 2s/10s flattens

Up chart 25 Mar 2021
The Bund posted further gains while 2s/10s flattened. A couple of new issues are pricing including a dual tranche from SocGen SFH.

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  • Rally extends; 2s/10s fattens
  • Limited 2s/10s steepening - Commerzbank
  • New issues

    Rally extends; 2s/10s flattens
    “There’s not a great deal to report, except the market still feels happy to rally from here,” reported one euro dealer earlier with the Bund future last up around 40 ticks while the 10y yield is marked at 2.48% (-3.5bps).

    Overnight, latest data from China revealed a slowdown in Q2 GDP while today European stocks are in the red with the EuroStoxx last -1.2%.

    Across the euro swap curve, 2s/10s has edged lower and was last marked -2.5bp at -77.25bps, about 10bps flatter than a week ago. The retreat comes as some strategists warn that now is not the time to enter 2s/10s steepeners, the latest including Commerzbank (see below). Further out, 10s/30s has moved within a narrow range so far today and was last marked at -43bps (unch).

    In new issuance, a couple of deals are expected to price today including Societe Generale SFH €1.25bn 3y and €1.25bn 7y covered bonds. “We’re not sure yet,” said one dealer away from the leads when asked if the deal could get swapped.

    Meanwhile, the Bund asset swap spread curve has flattened with last prices Schatz at 70.7bps (+1.5bp), Bobl at 70.4bps (+0.5bp), Bund at 66.1bps (unch) and Buxl at 31.3bps (-0.5bp).

    Ahead, a couple of sovereign issues are scheduled for this week including Germany’s launch of a new 2y Schatz tomorrow. US banks have begun to issue again kicking off with JPM and Wells Fargo in dollars. 


    Limited 2s/10s steepening - Commerzbank
    In its latest rates weekly Commerzbank sees limited scope for EUR 2s/10s steepening and prefers steepening exposure in the longer-end of the euro curve. The bank writes:

    • “For the EUR curve we see modest steepening potential if the market prices out the probability for a September rate hike. As the ECB is less advanced in the monetary tightening with real yields low and long-term breakevens elevated, the potential for bullish 2s/10s steepening is limited. We see potential in EUR/USD box trades and prefer steepening exposure in EUR 10s/30s.

    • “In terms of duration, we had argued that the long end is vulnerable with expected funding rates at 4% and yields thus likely to test their highs. As long-end yields have repeatedly been rejected near 2.7% while our economists expect the economy to weaken, the case for longs at yields near 2.6% is strengthening. We still expect yields at 2% by the end of the year.”


    New issues

  • Terna SpA is pricing EUR 10y Green around swaps +120bps through BofA, BNPP, DB, IMI, Mediobanca, Santander, SocGen and UniCredit (B&D).

  • Societe Generale SFH is pricing €1.25bn 3y Covered at swaps +8bps and €1.25bn 7y Covered at +29bps. Leads are SocGen and BayernLB.

  • Toyota Motor Credit is pricing EUR 7y around swaps +100bps through Barclays, BNPP (B&D), HSBC and MUFG.

  • Energia DAC plans €600m 5y NC2 after investor calls on 19 July through MS (B&D), DB, Barclays, GS, BofA, JPM, Lloyds and NatWest.

  • Leasys SpA plans investor calls today on 17 July ahead of the planned sale of EUR 3y through BPER, CA, IMI, JPM and UniCredit.