Higher as range tested
The Assumption Day holiday across much of Europe has sucked life out of the market, while the underlying saw a decent move with the Bund selling off over a point, spurred by a mix bag of US data that included stronger than expected US retail sales.
The 10y Bund yield hit an intraday high around 2.73% (+10bps), the highest since March, before paring back to 2.68% (+5bps) last.
In euro vol, implieds moved higher amid the decent intra-day realised and testing of the summer range in Bund yields.
Meanwhile the biggest gain was in 1m expiries, up around 5 normals, as the date now also incorporates the full session following the 14 September ECB meeting. For instance, 1m10y is up 5.5 at 106.2nvol and almost 10 normals higher than since the start of the week.
Slightly longer-dated gamma pieces also edged higher, such as 1y1y up 0.7 at 113.9nvol while 1y10y was up 0.4 at 106.6nvol.
Finally, vega continued its recent upward trajectory and nudged higher, from +0.3 in 5y10y to +0.1 in 10y30y.
Pay 20y10y vs buying 6m1y rec spread - BNPP
Strategists at BNP Paribas recommend paying 20y10y versus buying 6m1y receiver spread in euro rates. The bank explains:
- “We target a move higher in long-end yields while utilising tactically low top left vol to protect against a sharp risk-off. Term premium in the market is too low, in our view, and has room to re-rate higher, particularly given long-dated inflation expectations. We initiate a trade idea to pay 20y10y forwards at 2.01% in €35m (17k DV01) vs buying 6m1y -15/-65 receiver spread in €175m (vs 3mE). Entry at 219k, targeting 950k, stop loss at -375k with 1m carry at -42k.”
New structured issues
For a summary of recent euro structured issuance, please see EUR MTNs: Handful of callables, inflation.