PORTUGAL T-BILL AUCTION RESULT: 11-month BT Results

• The French OAT futures is still leading the gains within EGBs, the 10yr Yield is testing the 3.50% level, although this is not seen as a Technical level.
• The Initial resistance in OATM5 is seen further out, up to 122.80.
• The early price action in futures has helped the OAT/Bund to tighten by 1.7bps, the spread is again testing the 67.00bps area, this was close to the 50% retracement of Macron's last June snap election call.
• A clear break through 67.00bps, opens to ~63bps next.

The bid in EGBs has provided spillover support for gilts.

• Futures as high as 92.12.
• The bearish technical theme in the contract is still intact, with initial resistance at the 20-day EMA (92.28) unchallenged thus far.
• Yields now little changed to 2bp lower, curve flatter.
• Both 2s10s and 5s30s have edged away from cycle highs after failing to close above their respective psychological resistance points (50bp & 100bp).
• 10s lag Bunds, spread ~3.5bp wider at 183bp, underscoring the Bund-led nature of the rally.
• Essentially no movement priced into BoE-dated OIS for this week, 18.5bp showing through May, ~23.5bp through June, ~37.5bp through August and 54bp through year-end.
• We still look for the next cut to come in May.
• SONIA futures effectively flat.
• Macro and cross-market cues are set to dominate early this week, with much of this week’s UK focus set to fall on the BoE decision and labour market data, both due Thursday.
• Note that we haven’t seen a single call for anything other than an unchanged Bank Rate on Thursday, which should leave focus on the vote split and accompanying communication.
• Expect greater detail in our gilt week ahead preview.

The German 5s30s curve has bull flattened 4.3bps this morning, with fresh demand seen across EGBs over the last 90 minutes. 

• Ahead of tomorrow’s Bundestag vote on incoming Chancellor Merz’s fiscal proposals, local media have pointed to the potential for fiscal dissent within the CDU/CSU, SPD & Greens, although the bid was already in play before the latest speculation surrounding that issue did the rounds (note similar stories were already apparent over the weekend).
• This is probably a contributing factor to the bid, although the derailing of the fiscal reform seems unlikely at this stage.
• Bund futures are +63 ticks at 127.86, through the initial resistance point at 127.65. Next resistance of note at the Mar 10 high (128.33).
• 10-year EGB spreads to Bunds are within 1bp of Friday’s closing levels, with meaningful fresh macro cues lacking this morning and Friday’s ratings action coming in broadly as expected. Greece has regained investment grade status from Moody’s (upgrade to Baa3; outlook stable).
• Over the weekend, ECB’s de Guindos continued to express confidence in the inflation outlook, and re-iterated that increased trade tensions “would have a much worse impact on growth than on inflation”. De Guindos also provided similar comments this morning.
• Italian final February HICP confirmed flash estimates at 1.7% Y/Y.