LNG: First LNG Cargo of Year Taking Northern Sea Route

German ASWs vs. 3-month Euribor are unchanged to +0.3bp, looking through this morning’s bear steepening on the outright bond curve and operating off multi-week lows registered earlier in May.

• Commerzbank note that yesterday’s Dutch government ruling re: the pension fund transition will “bring less demand for core duration, a hedging focus on shorter maturities and more appetite for credit. Most factors argue for ultralong forward disinversion trades and using recoveries during the transition to scale into long-end Bund swap spread shorts”.

• The BTP/Bund spread, while showing a small touch wider, it continues to make an attempt through that Psychological 100.00bps level.
• As noted a Week ago, immediate downside target is at ~97.7bps (September 2021 low).
• And a further Tightening interest through would Open to 90.4bps (February 2021 low).

Citi identify several risks to existing steepener positioning on the EUR swaps curve (with a particular focus on 30s50s):

• “While originally around half of the total €1600bn assets (at end-2024) were targeted to transition each on 1 January 2026 and 1 January 2027, the DNB’s Q4 survey showed a shift later. Recently PME has shifted its transition from 1 January 2026 to 1 January 2027 and PostNL to April 2026, due to administrative difficulties. This could delay/stagger these unwinds”.
• “Any delay in transition could also be an incentive for funds with policy funding ratio under 120%. They could wait for a recovery in funding ratios from fiscal pressure on global long-end swaps to then add interest rate hedges at cheap levels”.
• Overall, they “suspect that any further 30s50s steepening due to this transition might only happen later in the year when more clarity emerges, for instance, from the next DNB survey, potentially published in July”.
• However, they stress that “the asymmetric long-end exposure to front-end swings has become more compelling over the last six months - which we believe supports 30s50s steepeners from a broader macro standpoint”.