At Any Rate Global Rates: European rates summer themes – seasonality, swap spreads, SSAs and gilts
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Jul 11, 2025 In this engaging discussion, the hosts delve into summer themes shaping the European rate markets. They explore historical trends in intra-EMU spreads, revealing implications for carry trades. The conversation shifts to the seasonal dynamics of swap spreads, highlighting widening trends linked to reduced issuance. Finally, they analyze European SSA exposures, especially in Germany, and dissect recent volatility in UK gilt yields due to fiscal pressures, providing insights into future yield projections.
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No Clear Summer Tightening Trend
- There is no clear seasonal tightening trend in intra-EMU sovereign spreads over the summer months.
- Carry trades work in summer only if no idiosyncratic drivers interfere, but current carry is limited due to tight valuations and positioning.
Seasonal Widening of German Swap Spreads
- German swap spreads tend to seasonally widen in summer due to reduced swap issuance by corporates.
- Markets often anticipate this widening early, causing peaks before actual issuance troughs.
Stable Front-End Swap Spreads
- Schatz-Ester short swap spreads have been stable in a narrow range, near a soft floor of minus 10 basis points.
- Stability in overnight funding rates supports the expectation that these spreads will retreat wider, aligning with bullish duration views.