GERMAN AUCTION RESULTS: New 3.00% Aug-36 Bund

The German curve has bear flattened this morning (Bobl yields up 2.5bps, 30-year Bund yields up 2bps), with the latest escalation between Israel and Iran reducing prospects of a near-term US-Iran ceasefire deal. 5s30s is currently 79.5bps, with 75bps presenting the initial downside target to monitor. Although a more protracted conflict raises the prospects of a more aggressive ECB tightening cycle, increased growth risks could dominate in the belly of the curve, presenting steepening risks to the likes of 5s30s.

• Bund futures (RXU6) are -30 ticks at 125.23. Initial support is the May 22 low at 125.08.
• 10-year EGB spreads to Bunds have widened a little versus Friday’s close, with BTPs  and GGBs around 1bp wider.
• This morning, German factory orders were much weaker than expected (-3.8% M/M vs -2.0% cons, 4.5% prior), even after excluding large scale orders. The June Sentix survey was a little less negative than feared.
• The ECB decision is on Thursday, with a 25bp hike firmly the base case, leaving focus on updated projections and guidance.

Figure 1: German 5s30s Curve

Expiry is Monday 15th June. Noted last Week that some Desks have started to roll into Sept earlier. CME flows will increase this Week.

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