BUNDS: Bunds Continue To Cheapen On 5s10s30s Fly
Mar-12 08:41
The presence of this morning’s Bund supply helps promote continued underperformance for 10s on the 5s10s30s butterfly.
- 10s sit at the cheapest level witnessed since December ’22 on that structure, with Bunds taking the brunt of the selling stemming from the tabled loosening of German fiscal policy.
- This comes as Bunds provide the most liquid point on the German curve and also probably reflects expectations surrounding the maturity makeup of issuance to fund any spending increases.
Fig. 1: Germany 5-/10-/30-Year Butterfly
Source: MNI - Market News/Bloomberg
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GILTS: Flat Start, Issuance & BoE Speak Due Tuesday, Little Scheduled Today
Feb-10 08:31
A flat start for gilts, futures last +3 at 93.23 (93.13-32 range).
- The short-term bullish cycle in the contract extended last week, initial support and resistance located at 92.50 & 94.35, respectively.
- Yields 0.5-1bp higher across the curve.
- 2s10s and 5s30s ~2.5bp and ~5bp off respective ‘25 closing highs.
- Goldman Sachs note that “gilts have continued to rally since the sharp sell-off in early January and are the best performer of the last few weeks. The extent of rally may mean gilts take a breather in the short run; however, we continue to expect a decline in Gilt risk premium over the coming year, and continue to recommend 10s30s flatteners.”
- Little of note on the UK calendar today, with comments from BoE Governor Bailey & MPC member Mann (after her dovish pivot) eyed on Tuesday.
- This week’s DMO issuance comes via a syndication of the new 4.50% Mar-35 gilt (we expect this to price tomorrow, pencilling in a size of GBP8.5-10.0bln) and GBP1bln of the 0.625% Mar-45 I/L line (Wednesday).
STIR: Latest Tariff Threats Keep Pressure On EUR Implied Rates
Feb-10 08:20
ECB-dated OIS have held onto the dovish repricing seen into Friday’s close, with US President Trump’s weekend tariff threats on steel/aluminium imports keeping the pressure on EUR implied rates. 87bps of ECB easing are priced through year-end at typing.
- OIS continue to fully price a 25bp cut in March, with 19bps of sequential cuts priced through the April and June decisions. 25bp cuts at the next three gatherings would bring the deposit rate to 2.00%, in the middle of the ECB’s heavily caveated 1.75-2.25% neutral range.
- In a podcast with Bloomberg released Friday, ECB Chief Economist Lane described neutral as a “hypothetical conjecture”, as it assumes a shock-free economy. In Lane’s words: “What's the probability the world won't face any more shocks in the next year?”.
- Euribor futures are -0.5 to +1.5 ticks through the blues, with a light flattening bias seen.
- The February Sentix survey is due at 0930GMT, but isn’t usually a market mover. That leaves focus on ECB President Lagarde’s appearance at the EU Parliament at 1400GMT.
| Meeting Date | ESTR ECB-Dated OIS (%) | Difference Vs. Current Effective ESTR Rate (bp) |
| Mar-25 | 2.418 | -24.8 |
| Apr-25 | 2.232 | -43.3 |
| Jun-25 | 2.043 | -62.2 |
| Jul-25 | 1.960 | -70.5 |
| Sep-25 | 1.872 | -79.3 |
| Oct-25 | 1.849 | -81.6 |
| Dec-25 | 1.804 | -86.1 |
| Feb-26 | 1.801 | -86.4 |
| Source: MNI/Bloomberg. | ||
BUNDS: /SWAPS: Long End ASWs Remain Under Pressure
Feb-10 08:12
The long end of the ASW spread curve continues to trade heavily, both in relative terms against Schatz and outright.
- Buxl ASW vs. 3-month Euribor registered a fresh cycle closing low on Friday, with increased free float and German issuance/fiscal risks continuing to weigh.
- These fundamental sources of pressure mean that relief episodes in long swap spreads remains contained, even when bonds manage to rally in outright trade.
- Meanwhile, repo/collateral dynamics have seemingly been binding in the front end of the ASW curve, preventing Schatz spread tightening towards ’24 lows.
- Still, J.P.Morgan go against the trend and recommend a tactical Bund swap spread paid position against the Schatz equivalent, given what they deem to be “attractive valuations.” They also suggest that their “2s/10s German cash bond curve flattening bias is also supportive of a steeper swap spread curve.”
