Stops triggered after Bundesbank surprise
“A big surprise” is how strategists at Commerzbank describe the Bundesbank’s announcement late Friday to reduce the remuneration of sovereign deposits to 0% from 1 October, see here.
Bund swap spreads popped higher across the curve first thing, led by the Schatz with the invoice spread vs €STR peaking around 52bps (+7bps) on the screens. The market has since come back slightly with last prices Schatz at 49bps (+4bps), Bobl at 45.75bps (+2bps), Bund at 43.5bps (+2bps) and Buxl at 22bps (+1bp).
“Stops were triggered. People lost money on the Schatz this morning,” said one market participant. “The Schatz spread had been outperforming last week. Fast money were cutting out shorts there, maybe they had wind that something was coming… But for most investors it came as a surprise. A lot didn’t know the reason (for the move today) and have lost money.”
Another trader shared his frustration, “A Monday in August isn’t a great time for this to be hitting the market. But then I guess we should be used to these outsized moves coming in summer,” he said.
In the background, global fixed income is trading lower with the 10y Bund future last down 40 ticks and the 10y yield marked around 2.61% (+5bps). The euro swap curve has bear-steepened with 2s/10s at -51.5bps (+5.5bps) and 10s/30s at -37.25bps (+1.5bp).
“It seems there was some long-end receiving the end of last week… But that’s paused for now with the focus on the short-end (after the Buba announcement),” one trader said earlier.
Bundesbank surprise - Commerzbank
“A big surprise” is how strategists at Commerzbank describe the Bundesbank’s announcement late Friday to reduce the remuneration of sovereign deposits to 0% from 1 October. In trade recommendations, the bank closes out its longstanding strategic Bund ASW tightener. It writes:
- “It’s rarely a good sign when clients are calling on a Sunday to discuss Schatz opening levels for the following morning… Another BuBill run cannot be excluded and scarcity speculation looks set to intensify further in coming months.
- “At the end of the day, however, we doubt that German paper will converge to €STR-365bps given the structural collateral supply/demand dynamics. Particularly the Finanzagentur should continue to provide sufficient collateral to the market and stand ready to counter disruptive scarcity if needed.
- “For the coming weeks, we sideline our strategic ASW tightener and adjust our longs in Schatz vs Bund spreads and BuBills vs BKOs to outright widener vs €STR. We also recommend outright longs in the Schatz as we expect the ECB to pause in September.”