Commerzbank: First Cracks In The Massive ASW-Decoupling

Commerzbank note that “the ASW-strength vs. GC, specials and BuBills is wearing thin. The Schatz invoice spread vs. Euribor tightened another 1.5bp yesterday and taken out the key 70bp level for good, trading on the tightest since eruption of bank stress in March.”

• “This move has neither been accompanied by sliding implied vols nor further collateral cheapening (note that BuBills are stabilizing at €STR-20) and hence looks like a genuine realignment of valuations).”
• “We had argued before that the gap between ASW-spreads and cash-equivalents will have to close via the bond leg, and reiterate our tightener, particularly for Bobl/Bund spreads following the ongoing outperformance vs. Schatz.”