ITALY AUCTION RESULTS: Buyback Results

German ASWs vs. 3-month Euribor are 0.8-1.2bp lower, with the front end of the curve leading the sell off despite the bear steepening in outright bonds.

• The Schatz spread is on for its lowest close since late March as it prints below 6bp.
• Bobl & Bund ASWs hold within their multi-week ranges, with the latter still sub-0bp.
• Friday’s close in the Buxl ASW represented the highest close seen since January.
• Broader macro sentiment remains key for spreads intraday, while medium-term focus continues to fall on German issuance intentions and the country's fiscal situation.
• The medium-term factors seemingly remain bearish for long end swap spreads, but the highly volatile headline environment that we are operating in at present means that any weakness in those spreads is unlikely to come in a straight line.
• Pre-existing short positioning in the long end may also provide increased vol.
• More granularly, Commerzbank note that “the new CTDs in the RX contract will be the Bund Aug-34 and in the UB contract the Aug-56. CTD will also change for DU contract. Special focus may be on the DU roll where the repo has traded very special below 0.9% on Friday, indicating that some market participants are eager to get their hands on the CTD”.

• Bund futures have weakened through the course of this morning, currently 39 ticks below Friday’s settlement at 130.82. Initial support is 130.39, the May 29 low. Despite the intraday selloff, a bullish theme remains intact from a technical perspective.
• Markets may be pricing in risks of structurally higher medium-term inflation, seemingly a combination of Trump’s latest tariff threats and higher oil prices following the weekend OPEC+ decision.
• Eurex rolls have been active, with today’s data calendar relatively quiet ahead of risk events later this week.
• The EU will sell up to E6bln of EU-bonds this morning, which may be adding further pressure to core EGB futures in the lead-up to the 1030BST bidding deadline.
• The German curve has bear steepened, with yields 2.5 to 6bps higher. 10-year EGB spreads to Bunds are up to 1bp wider, while EU-bond spreads are 1bp tighter despite the impending supply.
• The Eurozone May manufacturing PMI confirmed flash estimates at 49.4 (vs 49.0 prior), with an upward revision in France offset by a downward revision in Germany. The stronger-than-expected Spanish data was also countered by a slightly softer-than-expected Italian reading.
• This afternoon’s macro focus turns to the US ISM manufacturing reading at 1500BST. A reminder that Eurozone-wide May flash inflation is due tomorrow. There may be downside risks to the 2.0% headline consensus. Thursday's ECB decision (25bp cut to 2.00% expected) headlines this week's regional calendar.