EUR Swaps: Euribors resilient; ECB and spreads

Euribors resilient
The Bund has traded slightly softer today alongside other global fixed income markets with the 10y future last down by 12 ticks and the 10y yield marked around 2.50% (unch).

“There’s no issuance, obviously… The BOJ has been in focus a bit and then we have the BOE meeting later this week,” reflected one euro trader earlier. Last week, the BOJ effectively lifted the 10y YCC band by 50bps to 1% but conducted a buy back today, see JPY Swaps .

Back in euros, one trader noted that red Euribors have been holding up relatively well with reds trading 0-2bps higher. “Ever since the Knot comments (over a week ago) and then the ECB the tone has felt more dovish and the BOJ hasn’t really shaken that off in the front-end,” he felt.

Further up the curve, the curve is steeper across 2s/10s with last price at -63.75bps (+1.75bp) while further out 10s/30s was steady around -38.25bps (unch).

Finally, the Bund asset swap curve has flattened as the Schatz widens will the longer-end Buxl narrows. “There’s not a great deal to read into the movements today though,” a dealer felt, speaking earlier.

Last prices were Schatz at 66.4bps (+0.9bp), Bobl at 67.5bps (-0.4bp), Bund at 64.1bps (-0.8bp) and Buxl at 29.3bps (-1.0bp).

ECB positive for spreads - BofA
In its latest weekly rates research, strategists at BofA argue the outcome of the latest ECB meeting will be positive for spread products. It writes:

• “The decision and press conference were as bullish as could reasonably be for EGB spreads, and BTPs in particular. (1) relative to our prior, the ECB’s reaction function seems to be more careful towards risks of a hard landing (‘we do not want to be doing too much’) - this weakens one of the main narratives that would have supported bearish view on EGB credit.

  
  

• “Lagarde’s comments about TLTRO payments having surprised on the upside when it came to the desire speed of balance sheet reduction may also soften risks around a signifiant acceleration of QT in the short-term (risk to which the peripheral is particularly sensitive).

  
  

• “The change of the remuneration of required reserves may (at the margin) slow the convergence of banks’ client deposit rates towards market rates, keeping the retail bid or peripheral bonds alive for longer.”