EGBS: Bund Futures Move Away From Session Highs
Bund futures have moved away from session highs but remain above yesterday’s settlement levels owing to the softer-than-expected UK inflation report and pullback in European equity futures since the cash open. Bunds are +8 ticks at 128.21 at typing.
- Bund futures are holding on to the bulk of their recent gains. Resistance remains intact and - for now - the latest move higher is considered corrective. Initial resistance is Monday's gap of 128.48, which shields the 20-day EMA at 128.72.
- The German curve has lightly bull steepened, with 2-year yields down 1.5bps and 30-year yields up 0.5bps. Today’s 15-year Bund supply will likely be containing rallies at the long-end.
- There was little net reaction in Bunds/German ASWs on today’s constitutional court judgement, which allows the government to keep raising the solidarity surcharge (and so no further fiscal shortfall was created).
- This morning, Bank of Italy Governor Panetta played down the role of r* in calibrating near-term policy when rates are close to plausible neutral rate estimates (he views this range at 1.50-2.50%). He noted that “the ECB must remain pragmatic and data driven”, but its worth recalling he'll approach most decisions with a dovish bias.
- The equity pullback sees 10-year EGB spreads to Bunds biased wider. BTP Short Term and BTPei supply is due at 1000GMT.
- The EFSF has sent an RFP to a selection of banks with regards to an upcoming transaction. We pencil in a transaction on 31 March / 1 April, but don't have a strong conviction on the size / maturity.
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BONDS: Citi: Fade EU Underperformance Vs. OATs
Citi recommend selling 30-Year OATs vs. EU.
- They note that “OATs have outperformed since mid-January, initially due to the approval of French budget/survival of the Bayrou government and strong demand for bond supply, and lately on concerns that the EU could be used to borrow for the bulk of joint defence spending”.
- However, they believe “that the EU’s role could be capped at the €93bln of RRF loans that are still unrequested.”
- They also believe that OATs already price in “much of the good news”
- They prefer to implement the trade in the 30-Year zone given risk of ongoing EU re-openings in the 10-Year zone.
GERMAN DATA: IFO Expectations Improve, Particularly in Industry; Overall Weak
Germany's IFO Business Climate Index remained unchanged at 85.2 in February (January's print got slightly upwardly revised), remaining below expectations of 85.8. The print directionally mirrors Friday's flash PMI release across sectors, with services slightly deteriorating and some improvement in manufacturing, but overall a bit weaker. A more pronounced uptick in expectations would be needed for a firm signal of Germany's economy leaving the doldrums.
- Firm's current assessment deteriorated to 85.0 (vs 86.3 cons; 86.0 prior revised from 86.1) while expectations improved to 85.4 (vs 85.0 cons; 84.3 prior revised from 84.2).
- Across sectors, in manufacturing, sentiment improved as enterprises were noticeably less pessimistic amid stabilizing new orders. The print was the first notable uptick in the sector since May 2024 (see bottom left chart). In the services sector, sentiment deteriorated slightly, driven in particular by the transport and logistics subsectors. Expectations in the trade industry were stronger across both wholesale and retail, as they were in the construction sector.
GILTS: Large Flows going through in the spread
- First notable clip in the Gilt spreads, trades on legs in 40k at -4.5.
- UBS was bearish of the spread, and it is now testing a spread low, ignoring the dubious print during December and early January.
- Well over 100k now trades at 4.5 on legs.
