EGBS: Crowded Positioning May Be Limiting EUR Steepeners In September
Sep-25 16:07
The German 5s30s curve closed ~3bps flatter on the session and back below 100bps. Early bull flattening, partially linked to a long-end relief rally in Japan was replaced by a bear flattening dynamic following today’s hawkish US data. 30-year Bunds underperformed swaps, with ASWs (vs 3-month Euribor) down 1bp today at -40bps.
- For now, a trendline drawn from the June 20 lows remains intact in 5s30s, but today’s price action has narrowed the gap to trendline support at ~95.2bps.
- On a shorter-term basis, September’s curve dynamics may call into question some participant’s conviction in the steepening trade. The bounce from the Sep 12 lows (after global core FI underwent a broader flattening relief rally in early September) has lacked momentum.
- Crowded positioning may be playing its part in limiting EUR steepeners this month. The fundamental drivers for the trade remain intact, namely the Eurozone fiscal/issuance outlook and pension fund dynamics in the likes of the Netherlands.
Figure 1: German 5s30s Curve
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