EUR Swaps: Another pop, then retreat; Update on Dutch pension funding

Rollercoaster ride 26 Aug 2020
The Bund saw another pop first thing. Sources discuss CTA positioning and fast money interest. Deutsche Bank updates on Dutch PF funding ratios.

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  • Another pop, then retreat
  • Update on Dutch UFR ratios - DB
  • New issues

    Another pop, then retreat
    The Bund saw another spike higher first thing following overnight gains in US Treasuries, “Most likely there’s some more CTA covering… People still on holiday yesterday were probably waking up to the fact there was a big PMI-driven move on Wednesday,” suggested one trader.

    Earlier, the 10y Bund future surged up to 80 ticks while the 10y yield reached as low as 2.45% (-6.75bps), before paring gains with the 10y future last trading near unchanged. Elsewhere, the EuroStoxx has weakened from opening levels and was last up +0.3% while elsewhere the EUR 5y5y inflation swap moved lower on the screens and was marked around 2.60% (-1bp).

    The revival of euro new issuance has stalled with only a handful of deals set to price today, the largest being CA Home Loan's €1.25bn 5y Covered Bond.

    Interestingly, Bund asset swap spreads remain elevated and have yet to reverse all of yesterday’s gains. That said, sources say there has been interest from fast money accounts to fade the recent widening in spreads.

    Last prices vs 6mE were Schatz at 69.6bps (+0.2bp), Bobl at 69.8bps (+0.2bp), Bund at 65.0bps (+0.2bp) and Buxl at 29.9bp (+0.3bp).


    Update on Dutch UFR ratios - DB
    In a recent strategy note Deutsche Bank updates its estimate of Dutch pension fund funding ratios and concludes they remain resilient. It writes:

    • “We refresh our estimates of Dutch pension fund funding ratios. This approach proxies the funding ratio by capturing the performance of risky assets and swap rates over the period, and would currently suggest funding ratios are around the 120% level, having average around 117% over the first half of the year. Th relative strength of risky assets, even as long rates were largely flat over H1, helped support ratios in aggregate. The recent PMI-induced rally does serve as a reminder as to whether current funding ratios can be sustained over the rest of the monetary policy cycle (and over the transition to the new system).

    • “The relationship has been somewhat weaker in the past 18 months, owing to (multiple) changes in the UFR curve, as well as the indexation offered last year which would have eaten into some of the gains (the latest estimate makes adjustments for both these issues). Renewed discussions around indexation is likely to resurface as we head into the final quarter, which will, amongst other things, depend on the evolution of funding ratios from here.”


    New issues

  • CA Home Loan SFH is pricing €1.25bn 5y Covered at swaps +24bps through CA (B&D), Danske, LBBW, TD and UniCredit.

  • VUB is pricing €500m (max) 5y Covered at swaps +73bps through Danske, Erste, IMI (B&D), LBBW and UniCredit.

  • Hypo NOE is pricing €500m 2.5y Covered at swaps +18bps through Commerzbank, CA, NordLB, RBI and UniCredit.