SWAPS: J.P.Morgan Recommend Schatz/€STR Spread Widener
J.P.Morgan recommend entering a Schatz/€STR spread widener.
- They note that they “have a tactical widening bias on front/intermediate German swap spreads”.
- In their view, “front and intermediate spreads appear optically cheap on valuations, especially when seen against recent ranges”.
- They also flag “decent negative directionality versus yields over the past few weeks, with this relationship the strongest for Schatz”.
- Finally, they note that “seasonality of swapped issuance is supportive of wider spreads, as swapped issuance tends to decline sharply during July/August”.
- Ultimately, J.P.Morgan expect the Schatz/€STR spread to hover in a -10bp to -5bp range. They hold a high conviction on the floor of that range as they “expect stable funding rates”. They note that “German RFR has been relatively stable over the past few weeks and we see the ECB depo rate as a soft ceiling for these rates which should, in turn, act as a floor for the Schatz spread”.
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US TSY OPTIONS: TYN5 112.00 Calls Still Trading
TYN5 112.00 calls continue to trade, ~2.6K given at 0-02 this time, over 17.5K lots have traded at that level today.
ECB: Small Upward Revision To Latest ECB Wage Tracker; Broader Trend Intact
There were slight upward revisions to the ECB’s forward looking wage tracker compared to the April vintage, but the broader theme of softening compensation pressures remains intact.
- The tracker excluding one-off payments is seen at 3.082% in Q4 2024 (vs 3.024% in the April iteration). The ECB projects compensation per employee growth at 2.8% by the last quarter of this year, down from 3.8% in Q1.
- There were also upward revisions to the share of employees covered by the wage tracker (45% in Q4 2025 vs 43% in April).
- From the ECB: “The downward trend of the forward-looking wage tracker for the remainder of 2025 partly reflects the mechanical impact of large one-off payments (that were paid in 2024 but drop out in 2025) and the front-loaded nature of wage increases in some sectors in 2024.”
- Little impact in ECB implied rates following the release, as expected.
FOREX: FX OPTION EXPIRY - Some attention on the EUR and Yen
Bringing your attention to Monday and the Yen Expiry size.
Of note:
EURUSD 2.31bn at 1.1400 (could act as magnet, although the US CPI will determine the move in the spot before expiry at 15.00BST/10.00ET).
USDJPY 1.11bn at 145.00.
EURUSD 1.11bn at 1.1400 (thu).
EURUSD 1.37bn at 1.1400 (fri).
EURUSD 1.25bn at 1.1400 (mon).
USDJPY 4.57bn at 145.00 (mon).
- EURUSD: 1.1400 (2.31bn), 1.1500 (836mln).
- GBPUSD: 1.3450 (758mln).
- USDJPY: 145.00 (1.11bn).
- AUDUSD: 0.6495 (400mln), 0.6500 (346mln).
- AUDNZD: 1.0800 (300mln).
