Fast money fades ASW
A calmer session after yesterday’s risk-off rally has seen the Bund trade a modest range with the 10y yield around 2.485% (+2bps) while the Euro Stoxx has gained +1.2%. Elsewhere, the EUR 5y5y inflation swap was last marked at 2.61% (-1.75bps) having peaked near 2.67% earlier this week.
“There’s not much… We’re waiting for the US data (tomorrow),” said one euro swapper earlier. Among the US data due Thursday is CPI and Initial Jobless Claims.
Meanwhile, Bund swap spreads have stabilised after the sharp widening earlier this week following the Bundesbank’s surprise announcement to reduce the remuneration of sovereign deposits to 0% from 1 October.
As some dealers had previously suggested would happen, the spread curve has flattened with last invoice prices vs €STR marked Schatz at 50.1bps (+0.3bp), Bobl at 47.1bps (-0.25bp), Bund at 44.1bps (-0.5bp) and Buxl at 22.1bps (-0.5bp).
“It’s pretty much all people are talking about,” said one trader, when asked if there is much interest to enter Bund ASW flatteners and fade recent moves. “Fast money of course have been quick to put on some positions. They don’t call them fast money for nothing. But other accounts don’t have the appetite or risk capabilities after only just being blow out,” he felt.
Finally, swap flows have reported been “pretty dull” with 2s/10s at -58bps (+0.25bp) and 10s/30s at -37.25bps (+0.5bp).
In supply, a couple of new issues have popped up on the screens with Handelsbanken pricing a €750m 11y NC6 Tier 2 and Schleswig-Holstein pricing a €750m 10y.
Ireland to follow Bundesbank? - Commerzbank
In a strategy note published today Commerzbank asks which central bank could be next following the Bundesbank’s announcement late Friday to reduce the remuneration of sovereign deposits to 0% from 1 October. It draws attention to the Greek and Irish central banks:
- “Who’s next to follow the Bundesbank 0% is one of the key questions. Domestic public deposits vary widely across countries. More importantly, in relation to the domestic bill/bond market, the variations are extreme and hence also the impact of a potential deposit rotation. If the Greek or Irish central bank were to go to 0%, the domestic deposits affected would be 700% and 320% of outstanding sovereign bills and bonds with less than 1y maturity!”
Strategists also highlight Ireland’s NTMA (National Treasury Management Agency) and its legacy c.€14bn Apple escrow account established in 2018 for back taxes amid an ongoing dispute with the European Commission. It writes:
- “For NTMA, the legacy c.€14bn Apple escrow account is independently managed by external asset managers, and NTMA’s published annual cash surplus is consistent with ECB data. This suggests that almost all of the €25bn deposits with the Central Bank of Ireland are held by the NTMA. Given the NTMA’s mission ‘To manage public assets and liabilities commercially and prudently’, even a small probability of the Irish central bank going to 0% remuneration and triggering deposit rotation carries significant impact. We stay long IRISH vs core and Bunds. Similar arguments apply to PGBs.”