BUNDS: /SWAPS: ASW Widening Remains Limited Given Fundamental Backdrop

German ASWs generally a little wider on the risk-off price action triggered by U.S. auto tariffs/threats to levy further tariffs on the EU & Canada.

• Still, the moves are only modest, spreads to 3-month Euribor flat to +0.8bp, with the front-end outperforming.
• ASW widening episodes remain limited, with the medium-term increase in supply to fund the increase in fiscal spending keeping Schatz/Buxl ASW curves near cycle extremes.
• We have previously noted that while fundamentals continue to screen bearish for long-end ASWs, already short positioning, the lack of an immediate ramp up in issuance and lingering U.S. tariff threats present some risks to further tightening, at least in the immediate term.
• Commerzbank write “while the GCC ruling in favour of Germany's solidarity surcharge is not adding to the DFA's funding challenges, Bund funding implications remain high on the agenda in the wake of the fiscal “whatever-it-takes”. For markets, the QT-adjusted net supply figure is most relevant as it reflects the volume private investors will have to absorb over coming years. We argued before that the volume of outstanding Bunds could almost double on the back of the fiscal measures over the coming 12 years”.
• They go on note that “factoring in QE/QT indicates even more challenging supply prospects as net Bund supply after €QT could reasonably be expected to exceed EUR200bln from 2026 onwards. With DFA likely to fund these volumes across the curve, the Bund swap spread cheapening trend at the long-end looks set to remain intact”.