BUNDS: /SWAPS: Narrowing Bias In German ASWs Intact Despite Political Noise
German ASWs consolidate/extend on Tuesday’s late narrowing that followed CDU leader Merz’s confirmatory vote as Chancellor (after he failed at the first attempt on Tuesday morning).
- Spreads vs. 3-month Euribor are flat to 0.5bp lower.
- Bobl, Bund & Buxl ASW vs. 3-month Euribor are in the middle of the ~20bp multi-month range covering the “whatever it takes” fiscal moment-driven narrowing in early March and risk-off widening seen in April.
- Meanwhile, Schatz vs. 3-month Euribor is back below 10bp, only a couple of bp wider than levels that prevailed ahead of the volatility seen over the past couple of months.
- In light of yesterday’s German political developments Commerzbank suggest that the domestic political backdrop will “likely to add to the Bund discount vs. swaps longer term as it will not reduce the fiscal spending (where the envelope has already been agreed) while it has become clear that the implementation of structural reforms will become more difficult. This adds weight to our concerns that Germany will mainly end up with more debt and not higher potential growth”.
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SOFR: SFRM6/Z6/M7 Fly Sold
Recent trade in the SFRM6/Z6/M7 fly saw ~3K given at -11.5.
SWEDEN: March Budget Balance In Line with NDO F'cast; May Borrowing Report Eyed
The next Swedish National Debt Office (NDO) borrowing report is due on May 22nd. Updated fiscal projections and issuance announcements will need to incorporate any forecast errors since the November projection round and policy announcements in the Spring Budget Bill (presented in full on April 15th). This report may announce an increase in nominal SGB auction sizes from the current SEK5bln/auction.
- The Swedish March budget balance was -SEK4.6bln, in line with the NDO's November 2024 projection. That leaves the cumulative budget deficit since November at SEK63.2bln, versus SEK58.4bln expected. The March primary balance was -SEK6.3bln (vs -SEK5.5bln expected).
- In the last month, the Government has announced several expansionary measures to be included in the Spring Budget, including SEK5.8bln of spending to stimulate economic activity.
- In addition, the Government has announced SEK25bln in extra defense spending from 2025 (to be delivered during 2026-2028), and plans to increase defence spending in line with NATO’s new target (which may be between 3-4% GDP). If defence spending were to increase to 3.5% GDP by 2030, the Government expects to finance this through up to SEK300bln of additional borrowing by 2034.
- Finally, an additional SEK16bln in aid for Ukraine has been announced for 2025.
- The NDO will sell SEK2bln of the 1.75% Nov-33 SGB 1065 and SEK3bln of the 2.25% May-35 SGB 1066 at its auction this Wednesday.
FOREX: FX OPTION EXPIRY
Of note:
EURUSD 1.12bn at 1.1000.
USDJPY 1.76bn at 146.00.
USDCNY 1.06bn at 7.3500 (tue).
EURUSD 1.25bn at 1.1000 (fri).
- EURUSD: 1.1000 (1.12bn), 1.1055 (389mln), 1.1070 (404mln), 1.1100 (572mln).
- USDJPY: 145.00 (425mln), 146.00 (1.76bn), 146.50 (569mln).
- USDCAD: 1.4200 (444mln), 1.4270 (532mln).
- NZDUSD: 0.5610 (300mln).
