BONDS: Tsy/Bund Spread Off Lows, BofA See Value In EUR Duration
Oct-01 11:26
The 10-Year Tsy/Bund spread has rallied by ~10bp from September’s closing lows, last ~143bp.
- That comes after a sell off from the post-Liberation Day closing high of ~196bp.
- Bank of America believe that the break down in the Tsy/Bund correlation seen during the move “cannot be explained by relative breakeven or asset swap spread moves”.
- They go on to write “given the intense focus on German fiscal developments, term premium is considered by many investors as the driving force of EUR rate underperformance. However, term premium has corrected lower since May and more so in Germany than the U.S.”.
- They argue that “instead, the driving force of the relative rate underperformance is the repricing of the ECB”.
- As such, Bank of America see “a value proposition in EUR duration, not least since the ECB has to acknowledge the risk of asymmetry in the outlook”.
Fig. 1: 10-Year U.S. Tsy/Bund Spread
Source: MNI - Market News/Bloomberg Finance L.P.
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EQUITY OPTIONS: EU Bank Strangle
Sep-01 11:21
SX7E (19th Sep) 215/245^^, bought for 2.15 in 6k vs 1.44k at 225.50.
EFSF ISSUANCE: Apr-29 / Feb-34 Tap Dual Tranche: Allocations Out
Sep-01 11:20
E1.0bln tap of the 3.5% Apr-29:
- Spread set previously at MS+9 (guidance was MS+10bps area)
- Hedge ratio: 111% vs DBR 0 ¼ 02/15/29
- Coupon: 3.500% (150 days accrued), Annual ACT/ACT
- Maturity: 11 April 2029
- ISIN: EU000A2SCAL3
E1.0bln tap of the 2.875% Feb-34 tap:
- Spread set previously at MS+33 (guidance was MS+34bps area)
- Hedge ratio: 100% vs DBR 2.2 02/15/34
- Coupon: 2.875% (207 days accrued), Annual ACT/ACT
- Maturity: 13 February 2034
- ISIN: EU000A2SCAN9
Across both tranches:
- Size combined: E2.0bln (follows E3.5bln maximum combined set earlier, MNI expected E3bln but saw a chance of a smaller transaction)
- Books: closed in excess of €6.5bn (inc. €500m JLM)
- Settlement: 8 September 2025 (T+5)
- Bookrunners: LBBW / NOMURA (DM/B&D) / TD
- Denoms: EUR 1,000 x 1,000
- Target market: Professionals / Eligible Counterparties only (all distribution channels), each as defined in MiFID II
- Issuer: European Financial Stability Facility (EFSF)
- Ratings: Aaa (stable) / AA- (stable) / AA-
- Risk Weighting: 0%
- Format: RegS / Bearer Notes (TEFRA rules apply, no communications with or into the U.S.)
- Timing: Hedge deadline at 12:40pm LDN. Pricing to follow after hedge book closes
As per market source.
OUTLOOK: Price Signal Summary - Bear Cycle In Gilts Intact
Sep-01 10:58
- In the FI space, Bund futures are softer today but continue to trade above their August lows. Resistance at the 50-day EMA, at 129.77, has recently been pierced. A clear breach of the EMA would signal scope for a stronger recovery within the multi-month range. This would open 130.06, the Aug 14 high. Key support and the bear trigger lies at 128.64. Clearance of this level would reinstate the recent bearish theme.
- A bear cycle in Gilt futures is in play and last week’s fresh cycle low reinforces current conditions. Note that on the continuation chart, moving average studies are in a bear-mode position, highlighting a clear downtrend - for now. First support to watch is 90.22 (pierced), the Aug 26 low. A clear break would resume the bear leg and open the 90.00 handle. Initial resistance is at 91.24, the Aug 18 high.
