SWAPS: Natixis Recommend Short 2-/10-Year German/U.S. Bund Box Spread

REPO REFERENCE RATES (rate, change from prev. day, volume):

• Secured Overnight Financing Rate (SOFR): 4.30%, -0.01%, $2617B
• Broad General Collateral Rate (BGCR): 4.29%, -0.01%, $1062B
• Tri-Party General Collateral Rate (TGCR): 4.29%, -0.01%, $1024B

SOFR dipped 1bp to 4.30% on Friday, remaining under the Fed Funds effective rate of 4.33% as has been the case since May 5. 

Tesoro Publico has announced it will be looking to sell a combined E5.5-6.5bln of the following Oblis / Green Obli at its auction this Thursday, May 22:

• the 5.15% Oct-28 Obli (ISIN: ES00000124C5)
• the 3.10% Jul-31 Obli (ISIN: ES0000012N43)
• the 1.00% Jul-42 Green Obli (ISIN: ES0000012J07)

UBS note that “despite the significant repricing in the front end of the EUR OIS curve following the Fed meeting and the recent US-China trade developments, EUR curves have only marginally flattened. This suggests that the steepening trend is not yet over and could provide protection against shifts in policy expectations”, particularly in light of the EUR 1y1y move since the FOMC decision.

• UBS acknowledge that “EUR steepeners have been a popular and consensus view”. Nevertheless, they think that “the favourable carry and roll-down characteristics will continue to encourage investors to buy for carry, particularly given the relatively compressed credit spreads”
• They believe that “expectations of rising defence and infrastructure spending should continue to support the steepening theme, while the risks posed by U.S. tariffs on Eurozone growth and inflation are likely to exert continued downward pressure on the front end, resulting in a steepening”.
• Finally, they note that “some Dutch pension funds are likely to delay their transition in the new system and the ability to delay until January 2028, which will be facilitated by an amendment now in parliament is seen as essential. But broadly the transition is expected to start in earnest in January 2026 and to be largely complete by 2027. As the transition programme progresses, support for the long end should turn to selling”.