BONDS: EGBs-GILTS CASH CLOSE: Dovish ECB Drives Bull Steepening

Apr-17 18:09

Bunds rose sharply Thursday on the ECB decision, with European curves bull steepening.

The ECB cut by 25bps as expected, removing the word "restrictive" from the statement (as flagged by MNI sources prior to the meeting).
The message that downside growth risks have increased drove a sizeable rally in Eurozone rates (MNI's ECB meeting review is here).
Implied ECB easing through terminal increased by 11bp, and implied probability of a June cut rose to 90% implied (vs 70% prior).
This drove short-end outperformance, and both the German and UK curves bull steepened on the day.
Periphery EGB spreads tightened, with semi-core mixed.
Next week's calendar includes flash April PMIs, and multiple ECB/BoE speakers at the IMF annual meetings in Washington.

Closing Yields / 10-Yr EGB Spreads To Germany

Germany: The 2-Yr yield is down 6.2bps at 1.686%, 5-Yr is down 4.2bps at 2.019%, 10-Yr is down 3.7bps at 2.472%, and 30-Yr is down 1.8bps at 2.896%.
UK: The 2-Yr yield is down 5.4bps at 3.92%, 5-Yr is down 4.9bps at 4.044%, 10-Yr is down 3.7bps at 4.566%, and 30-Yr is down 2.1bps at 5.339%.
Italian BTP spread down 1.4bps at 117.3bps / French OAT up 0.1bps at 76.5bps

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Mar-18 18:05

ESTR ECB-dated OIS was relatively little changed today, only drifting up to 1bp lower for late 2025 and early 2026 contracts, with an intraday slide in crude oil futures and broader equity weakness putting downward pressure on implied rates.
It leaves 13.5bp of cuts priced for the Apr 17 decision, building to a cumulative 47bp of cuts in for 2025 from current levels.
Our sense from this morning's MNI Connect event with Bank of Finland Governor Rehn (who we view as an important barometer of the median Governing Council view, often striking a centrist/dovish leaning tone) is that the bar to him not voting for a cut in April is quite high.
Today’s data saw German ZEW expectations beat already elevated expectations for its highest since Feb 2022 but the current situation disappointed. The Eurozone trade surplus meanwhile was slightly larger than expected but there continues to be little appetite for increasing imports of manufactured goods amidst high uncertainty.
Tomorrow sees Eurozone final HICP inflation for February and plus labour costs for Q4 both at 1100CET/1000GMT. There are also multiple appearances from Centeno, de Guindos (x2), Villeroy and Elderson which could leave a net dovish tone. Guindos told the Sunday Times that whilst much is still uncertain about European defence spending, “it will likely be positive for growth and have a limited impact on inflation.”

Mar-18 18:01

Tuesday's Europe rates/bond options flow included:

ERJ5 97.87/97.9375cs, bought for 1.25 in 12k
ERK5 97.6875/97.5625/97.4375p fly, bought for 1.75 in 6k
ERM5 98.125/98.375 call spread vs 97.625 puts, 10K given at 1.75 vs. 97.785-97.79. Market contacts point to an unwind of an existing position
0RJ5 98.00/98.12cs vs 97.5625p, bought the cs for 1 in 5k

Mar-18 17:54

Date $MM Issuer (Priced *, Launch #)
03/18 $3.5B #Volkswagen AM $550M 2Y +93, $300M 2Y SOFR+106, $1.1B 3Y +108, $500M 5Y +132, $500M 7Y +147, $550M 10Y +155
03/18 $3.5B #ING $750M 4NC3 +85, $750M 4NC3 SOFR+101, $1B 6NC5 +100, $1B 11NC10 +125
03/18 $2B *ADB 10Y SOFR+57
03/18 $1.1B #Xcel Energy $350M 3Y +85, $750M 10Y +135
03/18 $1B #Bangkok Bank 15NC10 +178
03/18 $850M #PacifiCorp 30NC5.25 7.375%
03/18 $562M #Chile Electricity 10.6Y +160
03/18 $500M #CNH Industrial Capital 3Y +87
03/18 $Benchmark Ford Motor 3Y +190, 3Y SOFR+203, 7Y +235
03/18 $Benchmark NatWest 3Y +78, 3Y SOFR+95, 5Y +95, 5Y SOFR+119
03/18 $Benchmark LG Energy 3Y, 5Y, 10Y investor calls

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