EGBS: 2023 Highs May Contain Topside In 5-year Bobl Yields

Concerns around medium-term Eurozone growth prospects against the backdrop of the energy shock and ECB rate hikes could contain topside in 5-year Bobl yields. Bobl yields are currently 2.77%, having reached a multi-year high of 2.90% on May 19. That means the September 2023 high of 2.93% has been untested through the duration of the Iran war.

• Intraday, the curve has twist steepened, with Schatz yields down 3bps at 2.68% and 30-year yields up 1bp to 3.60%.
• Bund futures are +6 ticks at 125.33, recovering from overnight lows of 125.04. Initial firm resistance is not seen until 126.11 (June 3 high).
• Sovereign supply has been the main point of interest today:  The EU and Italy are both holding dual tranche syndications, while conventional supply has come from the Netherlands, Austria and Germany. Finland will also sell bonds at 1100BST
• 10-year EGB spreads to Bunds are up to 1.5bps narrower on the session.
• German April industrial production was in  line with expectations at 0.4% M/M, but annual growth remains tepid at -0.5% Y/Y. Both import and export growth were stronger than consensus.
• Regional focus remains on Thursday’s ECB decision, where a hike is unanimously expected and fully priced. 

Figure 1: 5-year Bobl Yields