EUR Swaps: EU €5bn long 7y arrives; Decline in Dutch PF Indexation eyed
EU €5bn long 7y arrives with €35bn orders
The European Union's first syndication after the summer break is being priced today with the sale of €5bn long 7y at swaps +2bps through BofA (B&D), CA, MS, Nomura and UniCredit.
The latest orderbook size for the €5bn deal is reported to be above €35bn at a final spread of swaps +2bps. One market participant felt the order size was "OK, but nothing amazing".
Speaking earlier, he said, "It's currently trading at the re-offer price +3cents in the grey market. Given the orderbook it's a bit surprising it's trading so close to re-offer and in reasonable size."
Elsewhere, in the latest data ahead of the ECB, German ZEW printed higher than consensus at -11.4 vs -15.0, up from -12.3 the previous month.
The Bund future has since retreated from earlier highs and was last trading up 10 ticks while the 10y yield is marked around 2.63% (-1bp).
In swaps, the steepening seen yesterday has paused with 2s/10s last at -53bps (-1.25bp) and 10s/30s at -34.5bps (-0.75bp).
Bund asset swap spreads are mixed with the spread curve flattening. Last prices vs 6mE were Schatz at 65.9bps (+1.2bp), Bobl at 65.1bp (+0.2bp), Bund at 60.9bps (-0.3bp) and Buxl at 24.2bps (-0.5bp).
Large indexation decline in Dutch PFs likely - BNPP
Strategists at BNP Paribas forecast a heavy decline in the hedging needs of Dutch pension funds later this year. The bank summarizes:
- "We expect this year’s indexation announcements from Dutch pension funds – usually in November – to lead to a net hedging need of around EUR15mn DV01 compared to the roughly EUR50mn DV01 from last year’s indexation.
- "The key drivers of the expected decline are lower inflation, lower funding ratios and pension funds’ preference for higher buffers ahead of the transition to a collective-defined contribution scheme. Recently published indexation methodology by Dutch fund PFZW supports this view.
- "If all top five funds used this methodology, their average indexation level would be 3.09% versus 9.5% in 2022 (assuming 4% inflation)."
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