Long the UB-RX €STER invoice spread

The recent movements in EUR swap spreads ha ve attracted much interest from investors. We see a greater steepening potential on the € swap curve than on the German curve, as political constraints in Germany will likely contribute to an undershoot on ambitious fiscal targets. At the time, Dutch pension funds transitioning to a DC scheme will weigh on the long end of the € swap curve. As we think the swap spread tightening potential is more limited on the Bund 10y tenor than on the 30y, we recommend going long the UB-RX €STER invoice spread at - 32 bp. We target - 20 bp in a 6 -month horizon and we stop our losses at - 38 bp.