TD: EUR Funding: Resilience Continues

TD Securities note that “underlying risks in the banking sector have abated. EUR ITRAX index is close to the levels seen before the banking crisis in March. That said, there are still brewing concerns on the resilience of the EUR funding market.”

• “Issuers and investors are slowly coming to terms with the fact that the days of free money from the ECB have ended. 3m IBOR vs. €STR rates trades around 3-4bps. This compares to negative levels seen until March this year.”
• “EUR front-end dynamics are driven more by the risk tone juggle between risk-on and risk-off modes. TLTRO repayments have been met with close to no impact on the funding market. Markets are still a bit complacent here.”
• “We still expect that IBoR vs. €STR spreads could further widen as we head into summer. This could support our view for further richening of front-end ASWs in the near term.”