EQUITIES: EU Cash opening calls

Cash Tsys sit a touch richer this morning, even with the weekend debt-ceiling dialogue between Biden & McCarthy turning more positive vs. how the situation was left as of Friday’s close, when GOP lawmakers walked out of discussions. Still, some weakness in German fixed income has added to the move away from richest levels of the Asia-Pac session, leaving the major benchmarks running 0.5-2bp richer, with the front end outperforming, and TYM3 in the middle of its 0-08 range.

• Weekend utterances from ECB’s Lagarde failed to provide much in the way of meaningful spill over for Tsys, while Minneapolis Fed President Kashkari (’23 voter) told the WSJ that he is “open to the idea that we can move a little bit more slowly from here,” which will have factored into the richening in Tsys as it dominated the headline feeds, even as he noted that he “would object to any kind of declaration that we're done.” That was because he told the WSJ that “If the committee chooses to skip a meeting because we want to get more information, I could make the argument why that makes sense.”
• A handful of bp of tightening remains priced for the FOMC’s June meeting, while FOMC-dated OIS points to just under 50bp of cuts during the remainder of ’23 vs. current terminal rate pricing.
• Fedspeak from Barkin, Bostic, Bullard & Daly will be received today, with a Biden-McCarthy debt ceiling meeting introducing another risk event.

German fixed income futures tick lower after the turn of the hour, chewing away their overnight gains to sit a little lower on the day, while the cash curve bear flattens. The tone of the weekend’s ECB speak has probably weighed on the space, while some optimism re: the U.S. debt ceiling situation may be creeping back in.

• The weekend saw ECB President Lagarde stress that the Bank has more ground to cover, reaffirming her previous line of messaging, even with a large part of the tightening journey now in the rear-view. She also underlined the ECB’s data-dependent stance, while noting that the Bank is not pausing based on the information that it has to hand at present.
• Elsewhere, late on Friday we saw ECB Executive Board Member Schnabel note that the Bank can keep acting to return inflation to target, underscoring the need to get rates to a sufficiently restrictive level, with further ground to cover on rates and a need to hold them at a sufficiently restrictive level for some time when the hiking cycle is over.
• Monday’s ECB speak will bring comments from de Guindos, Lane, Villeroy, de Cos, Holzmann & Vujcic. Regional supply will come from the EU, with 5- & 11-Year paper set to be auctioned this morning (up to EUR2.5bn of each will be on offer).

• Germany will return to the market on Wednesday to hold a 15-year Bund auction: E1.5bln of the 1.00% May-38 Bund (ISIN: DE0001102598) will be on offer alongside E1.0bln of the 4.75% Jul-40 Bund (ISIN: DE0001135366).
• On Thursday, Italy will come to the market to hold a BTP-ST/BTPei auction. We pencil in a reopening of the 3.40% Mar25 BTP Short Term (ISIN: IT0005534281) alongside either the 1.50% May-29 BTPei (ISIN: IT0005543803) or the 0.10% May-33 BTPei (ISIN: IT0005482994).

NET NOMINAL FLOWS: This week sees institutional redemptions of E47.6bln (E5.4bln of institutional funds held in a formerly 6-year BTP Italia, E5.0bln of a formerly 10-year EFSF-bond and E36.8bln of a formerly 10-year OAT). Coupons for the week total E11.8bln (E10.4b Spanish and E0.9bln Italian). With estimated gross nominal issuance of E20.5bln in the week, we look for net flows of negative E42.1bln this week versus negative E4.9bln last week.

For more on this week's supply, a recap of last week's issuance and a look ahead to next week see the PDF here.