Commerzbank: Repo/ASW Capitulation!

Commerzbank note that “the repo cheapening is broadening beyond GC as Bund specials are hitting multi-year lows vs. €STR and the specialness distribution has fully normalised, underscoring the overriding 'collateral abundance'.”

• “Swap-spreads have also taken a major leg tighter over recent sessions with Schatz-spreads vs. €STR slicing through the key 40bp mark - which is all the more relevant considering the simultaneous increase in implied vols.”
• “With Bund yields back above the levels from before the Hamas attack and short-dated swap spreads tighter, the safety premium is overcompensated by the gravitational forces from cheap repo levels.”
• “We see more arguments for further tightening, have taken profit on our tactical shorts in Schatz vs. Bunds spreads and stay neutral on 30y spreads.”
• “In futures, the Buxl net basis has receded from the highs but switch risk remains in play.”