EU CREDIT SUPPLY: Enel Hybrid: Dual NC6 & NC9 Yield Set

• RXF6 128.50/127.50ps 1x3, bought the 3 for 8 in 3k.

Covering some shorts.

The 10-year BTP/Bund spread has exhibited impressive resilience amid the latest uptick in EUR rates volatility. EUR 3m10y swaption vol is currently up 4.5bps on the session at a multi-week high of ~60bps, but BTP/Bund is only 1bp wider and is hovering just below the 70bp figure. Recent price action seemingly reflects BTP-positive themes that have been present throughout the year. That includes improving domestic fiscal fundamentals and more political stability in Italy compared to semi-core peers such as France.

• The 10-year BTP/Bund spread has narrowed almost 50bps this year. However, Italian paper still offers attractive carry given the context of an expected ramp-up of German fiscal spending/issuance from next year. While increases in rates vol tend to work against carry strategies such as BTP/Bund tighteners, it's worth remembering that 10-year EUR swaption vol remains close to multi-year lows.
• The seasonal increase in EGB supply at the start of next year may present a risk to further short-term narrowing in the spread, but we don't expect the 10-year segment of the curve to be tapped at Italy's (anticipated) January syndication. Additionally, any broader supply-induced widening may be faded if semi-core/peripheral sales are met with healthy demand.

Figure 1: 10-year BTP/Bund Spread Versus 3m10y EUR Swaption Vol (Source: Bloomberg Finance L.P.)

Figure 2: EUR Swaption Vol Since 2022 (Source: Bloomberg Finance L.P.)

• EUR/USD: Dec09 $1.1585-90(E1.7bln), $1.1760(E1.3bln); Dec10 $1.1580-81(E1.7bln), $1.1800(E1.7bln); Dec11 $1.1595-00(E3.0bln), $1.1610(E3.4bln), $1.1800(E1.7bln)
• AUD/USD: Dec09 $0.6330-35(A$1.2bln); Dec11 $0.6550(A$1.6bln)
• USD/CNY: Dec10 Cny7.1088($1.2bln)