GILTS: Futures Through Next Resistance Cluster

Bund futures spiked from ~130.75 to a session high of 131.08 after German CDU leader Merz failed to be approved as Chancellor in the first round of Bundestag voting. However, RXM5 has since eased back to 130.89 (-17 ticks versus yesterday’s settlement levels), with Merz still expected to be confirmed as Chancellor in subsequent votes despite the embarrassing first round result.

• The light upside in Bunds, relative to before the initial headlines crossed, reflects slightly increased risks of more contained German fiscal easing in the coming years than had previously been expected.
• The German curve has twist steepened, with Schatz yields down 0.5bps and 30-year Bunds up 2.5bps.
• The political volatility comes against a backdrop of sizeable German supply: A 30-year syndicated tap (MNI expects E4-6bln) and E4.5bln of the 2.40% Apr-30 Bobl (bidding deadline at 1030BST).
• Austria sold RAGBs earlier this morning.
• Data has not been market moving: The Eurozone April services PMI saw very similar themes to last week’s manufacturing PMI round, with Spain weaker than expected, Italy stronger than expected and upward revisions seen in France/Germany. Eurozone March PPI was softer-than-expected at -1.6% M/M (vs -1.4% cons, 0.2% prior).
• 10-year EGB spreads to Bunds have widened modestly, with European equities weakening through the course of the morning, exacerbated by the latest German headlines. 

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