EURi: Forwards edge lower as supply arrives, duration sells off

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Euro inflation forwards edged lower today against a backdrop of French supply and a global selloff in duration.

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  • Forwards edge lower as supply arrives, duration sells off

  • Barclays: Short 5y5y, iota RV

  • New issues: SPIRE

     

    Forwards edge lower as supply arrives, duration sells off

    Some rare August supply arrived today with France’s smallish €1bn linker auction divided between €617m of the OATei-27 at 0.43% and €381m of the OATei-38 at 0.75%. Bid to cover ratios on the bonds were 2.83 and 2.70 respectively. Today’s global duration selloff bear-steepened real yields by 3.5-7.5bps and the long end of the breakeven curve lost around a bp, although the OATei-38 outperformed on the day.

     

    In swaps, with Brent up a dollar but Dutch gas futures a touch softer again, the EUR curve was +1bp at the front end and -1bp further out. The result was EUR 5y5y edged down again to 2.62% (-1bp) and 10y10y dropped to 2.82% (-1bp). SDR swap trades included a large number of similar EUR 10y and 30y clips. Earlier, EUR 10y traded at 2.65%, 2.66% and 2.63%, while 5y went through at 2.65% and 2.66%.

     

    Barclays: Short 5y5y, iota RV   

    Barclays strategists continue to recommend shorting EUR 5y5y, as well as a combination iota trade of going long the DBRei-46 in iota against a short of the OATei-38.

     

      “We continue to see risks skewed to the downside for forward inflation premium and hold our recommendation to short 5y5y HICPx inflation swaps. Given seasonal slowness and low supply in August, we would not be surprised if pricing remains elevated for a couple of weeks, though the recommended stop of 2.80% (all-time high from October 2009) allows us patience.

       

      “OATei-38 now basically as rich in iota as any long-tenor OATei has been in recent years. While some of this is due to dynamics of the nominal comparator, since 4 July the issue has still richened the most on Z-spread ASW outright among long-tenor OATeis, and is a clear outlier in iota performance.”

     

    New issues: SPIRE

    • SPIRE sold a €8m inflation-linked repack 0.463% due 1 Feb 2039. The note is linked to euro HICPx but repack unconfirmed. Priced at 88.0 and lead is DB.

       

    • SPIRE sold a €8m inflation-linked repack 1.075% due 1 Feb 2039. The note is linked to euro HICPx but repack unconfirmed. Priced at 88.0 and lead is DB.

       

    • SPIRE sold a second, €8m inflation-linked repack 1.075% due 1 Feb 2039. The note is linked to euro HICPx but repack unconfirmed. Priced at 88.0 and lead is DB.  

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