/SWAPS: Commerzbank Still Prefer Spread Tighteners

Commerzbank write “the push higher in swap spreads seems to have passed the turning point already.”

• “Schatz invoice spreads are trading notably tighter again, decoupling from the relevant risk-off measures following the very close correlation until last week's peak.”
• “Implied vols for remain stuck at the highs, as does 5y5y € ILS or other proxies for the inflation risk premium which are instrumental for ECB-expectations.”
• “Ultra-long spreads had already been trading heavy beforehand.”
• “In sum, this once more confirms our central view that collateral abundance changes the game for ASW-spreads.”
• “Flight-to-quality certainly remains a widener, but with specialness dormant the other crucial ingredient for a self-reinforcing ASW/collateral spiral and hence sustained widening is missing - turning such episodes into good selling opportunities.”