EGBS: Equity Pullback Helps Bunds Stabilise; Fiscal Announcement Still Weighing
The pullback in European equities has allowed major EGB futures to stabilise somewhat, but the fallout from Tuesday’s German fiscal announcement continues to weigh on the space.
- Bund futures are -71 ticks at 127.47, almost 400 ticks off Tuesday’s settlement levels. The intraday low at 127.14 provides initial support, clearance of which would expose 126.84 next, a Fibonacci projection.
- The souring of risk sentiment sees the short-end outperform, with the German curve twist steepening (Schatz yields are down 2bps, while 10-year Bund yields are up 6bps).
- Spanish and French conventional auctions saw decent results, which may have been somewhat relieving for markets given current volatility and the relatively small order books at yesterday’s German syndication.
- Most EGB spreads widen following an FT report suggesting that “in today’s summit EU leaders will agree to “substantially increase defence expenditure” and demand “the commission to propose additional funding sources for defence at EU level”.
- Eurozone January retail sales were weaker-than-expected at -0.3% M/M (vs 0.1% cons), though December’s reading was revised up to 0.0% from -0.2% initial.
- Regional focus turns to this afternoon’s ECB decision. While a 25bp cut is fully expected, recent fixed income market volatility will almost certainly addressed in President Lagarde’s press conference.
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EGBS: Bund Futures Below Yesterday's Settlement Levels Alongside USTs
Bund futures are 42 ticks below yesterday’s settlement levels at 132.87, with core FI markets unwinding a little of yesterday’s tariff risk-premium following agreements between the US and Mexico/Canada. The reaction to China’s retaliatory actions overnight has been relatively contained.
- Initial short-term support in Bunds is not seen until the 20-day EMA at 132.14.
- German yields are around 4bps higher across the curve, though 10-year yields at 2.423% remain comfortably below Friday’s closing levels of 2.459%.
- 10-year EGB spreads to Bunds are up to 1.5bps tighter, with European equity futures continuing to inch higher.
- The OAT/Bund spread remains above 70bps, with medium-term fiscal and political risks still present despite PM Bayrou looking likely to survive tomorrow’s censure motion.
- Austria sold E1.725bln of 5/15-year RAGBs this morning. We remain on the lookout for syndication announcements from Belgium, Germany and Italy.
SECURITY: Iran's Nuclear Programme In Focus Ahead Of Trump-Netanyahu Meeting
Israeli Prime Minister Benjamin Netanyahu will meet President Donald Trump at the White House at 16:00 ET 21:00 GMT. Following a one-hour bilateral meeting, Trump and Netanyahu will deliver a joint press conference at 17:10 ET 22:10 GMT. Netanyahu is expected to stay in the US until at least Saturday for meetings with US officials and lawmakers.
- The meeting comes amid concerns about the implementation of phase two of the Gaza ceasefire agreement. Trump told reporters at the Oval Office yesterday that there are “no guarantees” the ceasefire will hold: “We'll see how it all turns out. It's complex".
- Politico notes: “Israel has yet to name a negotiating team for the second phase of talks, which will seek to turn the six-week cease-fire into a permanent cease-fire … That move has sparked worries in some corners that Israel could undermine efforts to fully end the war [against Hamas].”
- The meeting is likely to touch upon Iran’s nuclear programme and a plan to normalise relations between Israel and Saudi Arabia – a key pillar of Trump’s Middle East policy.
- Former national security advisor, Jake Sullivan, told FT this week that Netanyahu will be “sorely tempted” to take advantage of Iran’s weakness to strike Tehran’s nuclear facilities.
- New York Times reports on new US intelligence, likely to be discussed: “Iran’s engineers are exploring how to rapidly turn stockpiles of nuclear fuel into a workable, but perhaps crude, atomic weapon, should the country’s leaders decide to race for a bomb.”
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