Commerzbank Weigh In On ASWs, Like Bund Tighteners Vs. Wings

Commerzbank note that “swap spreads are staging a comeback led by Schatz, also defying the renewed specialness evaporation which has returned to the lows observable before quarter-end.”

• They believe that “positioning in bonds and swaps seems key. In addition to overriding re-pricing of risk and opportunistic demand, the notable ASW/repo decoupling points towards hedging flows.”
• Ultimately, they suggest that “although the renewed safety premium should underpin spreads near-term, structural arguments argue against a turning point in the overriding ASW-trend. We expect tightening dynamics to resume and still like shorts in 10y Bund-spreads vs. the wings.”