EGBS: Bear Steepening Trend Persists
The German 10s30s curve is another 1bp steeper this morning at 56bps, nearing the 2021 high of 57bps. It’s more a continuation of this year’s trend, rather than in response to any fresh catalyst. Key drivers of long-end bear steepening through 2025 include increased fiscal/issuance pressure in Germany and Dutch pension fund reform.
- Since January, Buxl ASWs (vs 3-month Euribor) are essentially unchanged at -36bp. That’s likely because increased issuance pressures push rates higher via the bond leg, while pension fund reforms impact the swap leg.
- As noted above, 30-year yields are up 3bps today and looking to retest Tuesday’s 14-year high of 3.308%.
- Bund futures are -34 ticks at 129.17. Initial support is the 129.00 figure, which shields key support and the bear trigger at 128.84 (Jul 25 low).
- 10-year EGB spreads to Bunds are between -0.5 and +1.0bps today. BTPs are surprisingly a little wider despite today’s 0.6% rally in European equity futures.
- There may be some interest in Ireland after hours, with Moody’s potentially providing a ratings update (current rating: Aa3; Outlook Positive).
- However, primary focus remains on this afternoon’s US data and the outcome of today’s Trump-Putin meeting in Alaska.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
EGBS: Bund Futures Off Session Lows But Bearish Theme Still Dominant
Bund futures are off session lows following a downtick in Brent crude futures, but remain -6 ticks at 129.40. A bearish technical theme remains intact, with initial support the July 14 low at 129.08, clearance of which would expose the key support at 128.97 (May 14 low).
- German yields are off earlier highs, now up to 0.5bps lower across the curve. Germany will sell E1.0bln of the 1.25% Aug-48 Bund alongside E1.5bln of the 2.90% Aug-56 Bund at 1030BST.
- In France, opposition politicians have been lining up to criticise the budget proposals announced by PM Francois Bayrou on 15 July. There is a strong likelihood that, given the gov'ts minority status, Bayrou will have to push the budget through using Article 49.3 of the French constitution in order to avoid a vote.
- The 10-year OAT/Bund spread remains fairly insulated though, currently 0.5bps tighter at 69bps.
- Broader EGB spreads to Bunds are also little changed, with European equity futures off earlier lows.
- The Eurozone May trade surplus was larger than expected at E16.2bln (vs E14.0bln prior).
- Broader global focus will be on the US PPI report at 1330BST following yesterday’s CPI reading, which started to show some tariff impact in core goods categories.
US TSY OPTIONS: TYU5 109.50/108.50 Put Spread Also Blocked
TYU5 109.50/108.50 put spread 20K was also blocked at 0-16 vs. 3K TYU5 110-10. Suggest a buyer of the put spread via the block, with the previous screen flow perhaps representing a market maker covering the position before the block was lodged (at 0-17, not 0-16).
EU: Commission To Unveil Multi-Trillion Euro Long-Term Budget Proposal ~17:00CET
At around 17:00CET (11:00ET, 16:00BST), European Commission President Ursula von der Leyen and Budget Commissioner Piotr Serafin are set to hold a press conference (live stream here) to unveil Commission proposals for the next Multiannual Financial Framework (MFF). The MFF is the long-term EU budget spanning 2028 to 2034. Politico reported late on 15 July that the central budget figure being targeted by the Commission is EUR1.717 trillion, which "would mean total spending would rise to 1.23 percent of gross national income for the seven years from 2028, compared with around 1.1 percent over the current period."
- The College of Commissioners meet before the press conference to give final approval. Serafin will also appear before the European Parliament's budget committee at 12:30CET (06:30ET, 11:30BST).
- The MFF process will continue over the next two years, and there is likely to be a significant amount of change from these initial proposals. EU Observer notes, "the parliament and member states will enter technical discussions and more intensive negotiations. But the specific figures and how funds will be allocated will only emerge at a later stage. Informal meetings among the commission, council, and MEPs may be used early on to align positions."
- Initial expectations are that VdL will look to propose “new own resources”, i.e. new 'EU taxes' to raise revenues. Such a proposal will prove controversial, with Sweden's European Affairs Minister Jessica Rosencrantz saying, “We don’t see a need for new own resources and definitely not European taxes."
