SWAPS: EUR10s30s Consolidates Around 25bp
EUR 10s30s is little changed at 25bp after steepening over the past couple of sessions in the wake of headlines surrounding the Dutch pension fund transition towards a defined contribution system. Cycle closing highs at 28.2bp remain unchallenged.
- Yesterday’s move came after PMT, the third largest Dutch pension fund, confirmed its plans to transition on January 1 ’26, similar to PZFW (the second largest fund) the day prior.
- While there was no true new news in the headlines (just affirmations of existing plans, explaining the quick fade from Thursday highs), they remind us of medium-term curve steepening risks surrounding the matter and also promoted outperformance of Buxl vs. swaps in recent days.
- This came after some curve flattening/position squaring amid speculation that transitions may be delayed.
- Commerzbank note that “it almost seems that traders have programmed their algos to react to such headlines, while the temporary nature of the move argues against actual pension flows driving the dynamic”.
- ING write “with Bouw already having approval, and PFZW also on track, the three funds make up €400bn in assets. We are increasingly confident that we will see significant flows out of longer-dated swaps and bonds in ‘26”.
- They also flag that “PMT previously shared plans to unwind excessive interest rate hedges over six months, reducing immediate market impact. The fund intends to reduce the hedging ratio in steps, dynamically determined depending on market conditions. Other funds have not been as explicit, to prevent speculators from taking advantage. We still believe funds will try to unwind excessive hedges as soon as possible to prevent rates rising against them. We don’t expect a disorderly sell-off”.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
FOREX: CME FX Roll update
The next positioning Roll to come will happen next Week, rolling CME FX September Positions into December, expiry will be on Monday the 15th Sep.
PACE for now:
- EUR: 5% (below Pace).
- GBP: 4% (below Pace).
- JPY: 17% (above Pace).
- CHF: 2% (below Pace).
- CAD: 3% (below Pace).
- AUD: 6% (above Pace).
- NZD: 2% (below Pace).
- SEK: 2% (below Pace).
- NOK: 2% (below Pace).
GBP: Options Augur Against GBP, Highlighting S/T Downside Risks
- The growing negative correlation between longer-end yields and GBP is extending this morning. The recent drop in spot and renewed fiscal concerns are supporting a bid in vols: 3m implied has been marked higher to 8 points this morning, erasing the summer lull and returning above the YTD average of 7.8 points (which is already well above 2024's 6.9 points).
- In tandem, the front end of the GBP risk reversals curve has deteriorated: dropping to lowest since March against USD and lowest since July against EUR - signalling decent demand for GBP downside insurance covering the rest of 2025 - despite the continued pricing-out of further rate cuts into year-end 2025.
- GBP options activity was ahead of average yesterday, and that trend's persisted into Wednesday: decent demand for downside exposure is the driver here. So far today, close to $4 in puts have traded for every $1 in calls, with 1.31 and 1.29 put strikes garnering the most notable interest. Some of the more sizeable trades across these strikes are consistent with put spreads targeting an October/November expiry - so rolling off just prior to the UK Budget on November 26th with a break-even below ~1.3025 at expiry.
- As a result, the GBPUSD vol surface is leaning further in favour of OTM puts, tipping the GBPUSD SMILE to its sharpest skew since the April Liberation Day vol episode. This raises the risk of GBP/USD downside in the coming months, isolating 1.3144/42 as key support - the 38.2% retracement for the YTD upleg, as well as the August 1st low.
- Scrutiny over UK press will now increase: policy proposals are usually floated in the media ahead of the Budget - allowing ministers to phase-in any fiscal bad news and retain rabbit-in-the-hat style positive policy surprises on Budget Day itself.
COMMODITIES: Gold Remains in a Clear Bull Cycle
A bear cycle in WTI futures remains intact and the latest bull phase appears to be a correction. This short-term corrective cycle remains in play and Tuesday’s rally reinforces this theme. Initial resistance to watch is $66.56, the Aug 4 high. Key short-term resistance has been defined at $69.36, the Jul 30 high. Clearance of this level would cancel a bear theme. A resumption of weakness would pave the way for a move towards $57.71, the May 30 low. Gold remains in a clear bull cycle. This week’s gains have resulted in a breach of key resistance at $3500.1, the Apr 22 high, and delivered a fresh all-time high in the yellow metal. The break confirms a resumption of the primary uptrend and an extension of the sequence of higher highs and higher lows. The next objective is the $3600.00 handle. Initial firm support to watch lies at $3396.2, the 20-day EMA.
- WTI Crude down $0.15 or -0.23% at $65.43
- Natural Gas down $0.03 or -1.1% at $2.976
- Gold spot up $7.24 or +0.2% at $3540.08
- Copper down $0 or 0% at $464.05
- Silver down $0.07 or -0.17% at $40.7962
- Platinum down $14.54 or -1.03% at $1396.04
