Sticking with steepeners
A “pretty uneventful” start to the end of the week was reported by traders today with the 10y Bund future last up 20 ticks and the 10y yield marked around 2.60% (-1.5bps).
In terms of flows, one trader said, “Supply has been pretty well digested this week. Yesterday we saw some flattening and I think most people are still looking towards steepeners as the popular trade.”
Across the curve 2s/10s was last at -52bps (+1bp) having dipped to -54bps intra-day yesterday while 10s/30s was last at -33.75bps (unch) having opened at -35bps yesterday.
Elsewhere, Bund asset swap spreads are near unchanged with last prices vs 6mE putting the Bobl at 65bps (+0.1bp), Bund at 60.8bps (-0.2bp) and Buxl at 25.7bps (-0.2bp).
Positioning into ECB - Commerzbank
In a strategy note published today, Commerzbank looks at positioning into next week's ECB meeting. It writes:
- "The latest dynamics in Bunds are encouraging with yields falling across the curve, despite another set of firm US data, with long-end yields again rejected close to long-term highs of 2.7% in 10y and 2.8% in 30y. It is telling that this recovery took place while the odds of an ECB rate hike next week actually inched up. This underscores that the impact from the actual rate decision could stay confined to the very front end with the ECB choosing between a hawkish pause and dovish hike.
- "The market remains unsure about the rate decision itself (probability for a hike is 37%) and analysts are even more divided. Yet the pre-positioning for this event should largely be through. With the ECB in blackout and no more important data scheduled only sources stories could make a difference.
- "The decision on the deposit rate is, of course, most relevant for financial markets, as this rate determines the ECB's monetary policy stance and steers €STR, which is the anchor of the € swaps curve. The other interest rates the ECB pays on its liabilities can nevertheless also impact money markets and swap spreads - besides having distributional effects on interest income... the ECB could consider combining a reduction in the remuneration of government and foreign deposits with an increase in the banks' reserve requirements."