EUR belly holds as US yields jump

Euro mid-curve yields held steady on Friday as US long-term yield volatility picked up, keeping euro-area swap spreads largely unchanged and limiting immediate repricing.

Data and traders' accounts

Data showed little movement in euro-area five-to-seven-year swap rates versus the prior session, even as volatility in US long-dated Treasury yields picked up, traders said. Market participants attributed the muted euro response to steady local demand for duration and limited changes in market-implied ECB policy paths.

Euro belly little moved

Rates strategists said flows from pension funds and insurers have continued to anchor the euro belly, reducing sensitivity to headline moves in US yields. Portfolio managers added that shorter-dated euro swaps remain tied to near-term inflation expectations and liquidity, which have not changed materially this week.

Implications for traders

Traders said the split reaction raises scope for relative-value opportunities between US and euro curves if cross-market volatility persists. Hedging costs in cash and swaps are likely to determine whether investors tilt into euro-duration or seek protection in US Treasuries, they added.