Commerzbank: Cheap Bund Collateral Drags Swap Spreads

Commerzbank note that “good demand for duration has probably contributed to the € curve flattening at the margin but was not enough to support swap spreads.”

• “Here the cheap levels for German collateral remain a drag. Specials trading over month-end richened only slightly despite the upcoming futures delivery, while GC remains near its cheapest levels, some 5bp above €STR.”
• “In turn, the initial richening in BuBill and Schatz spreads since the Bundesbank 0% announcement is also receding. Their spread premiums are thus looking elevated compared to the collateral spreads.”
• “Yesterday's Bundesbank data underscores that shifts in sovereign deposits have not yet taken place. This still leaves the potential for some richening in place before the 0% remuneration comes into effect.”
• “As we still don't expect a lasting impact on Bund repos we suggest using any re-widening in spreads during the upcoming period or during sovereign deposits shifts ahead of October to resume shorts.”