Derivs - Interest Rate

The European Securities and Markets Authority (ESMA) has proposed a two year extension on the deadline for smaller trading counterparties to comply with a derivatives clearing obligation under the European Market Infrastructure Regulation (EMIR), citing lack of progress on the initiative.

Regulators have failed to consider the data challenges of their plans to impose margin on uncleared swaps, threatening a “tidal wave of new documents”, said D2 Legal Technology, a consulting firm specialising in legal and regulatory data management.

There is no reason why euro swaps trading would have to leave London where it is overwhelmingly concentrated, dealers believe, even if Brexit leads European authorities to insist that clearing of the contracts takes place within the Eurozone.

Confusion reigns over Europe’s plans to impose margin on uncleared swaps, with the European Commission facing calls from supervisory bodies to pick up its pace on implementing the rules, as an industry survey found that banks are woefully unprepared to meet the deadlines.

Firm data on the Chinese economy has backed paying in CNY swaps and some steepening across the 1s/10s slope. Sources still say the curve is too flat. Bank of China will price a Green bond issue later today, writes Deirdre Yeung of Total Derivatives.

A joint committee of European financial regulators has written to EU Commissioner Jonathan Hill urging him to minimise any delay by the European Commission in implementing margin rules on uncleared swaps.

CNY swaps have been bid on firmer data and the view that rates are too low. 5-year paying interest has been evident and the 1s/5s NDIRS curve slope is considered too flat. Meanwhile, Bank of China is planning to issue Green bonds, writes Deirdre Yeung of Total Derivatives.

Bankers and lawyers have been grappling with likely consequences of the end of euro clearing in the City of London — specifically, will their trading floors have to follow clearing into the eurozone? The UK chief executive of one major French bank said that the firm had received differing legal advice on this point, and that it was a "crucial" question.

Early offers in 5-year CNY NDIRS faded given building expectations for a corrective curve steepening move. China will look to sell CNY14bn in dim sum bonds in Hong Kong this week. CNY/KRW can now be traded directly in the FX market, writes Deirdre Yeung of Total Derivatives.

Today the PBOC fixed the yuan at its weakest level since 2010, causing short-end underperformance as offers drove 5-year NDIRS lower. One source said the resultant curve flatness should dampen further receiving interest in the belly, writes Deirdre Yeung of Total Derivatives.

A British vote to leave the European Union could lead to the reopening of a spat between the Bank of England and the European Central Bank over clearing euro-denominated trades. Last year, the UK won a court battle in the European Court of Justice, keeping the right to clear euro-denominated trades outside the eurozone.

Easing Brexit concerns have supported better paying in CNY swaps. Looking forward, the NDIRS curve is expected to steepen on improving liquidity conditions and dim sum related swap flow, writes Deirdre Yeung of Total Derivatives.