EU HEALTHCARE: Zimmer Biomet Holdings (ZBH): 7YR IPT

Mann making some hawkish comments here (but not unexpected given her dissents to favour a 25bp hike at the last two MPC meetings).  She discusses inflation premium, firms investing in energy and 2027 wage negotiations in a period when inflation is likely to be above 4%.

• "When we think about this permanent risk, the balance really is: I'm seeing inflation premium in the term premium. I'm seeing inflation coming through the nominal decisions of firms, in particular on pricing, but I also see reticence on the part of households to spend, because higher inflation volatility induces them to hold savings buffers because they don't know how far their purchasing power is going to go so that balance of who's bearing the risk, where is it being manifested the most-inflation, markets, or the real side-that's ultimately the the balancing decision that I have to evaluate when when making a decision. At this point, I've come down on the side of it's showing up in inflation, it's showing up in markets, and the real side of the economy, even notwithstanding the savings buffers of households, it that is resilient."
• "One of the most interesting things that have been showing up increasingly in my agent visits is the extent to which firms are undertaking energy saving investments. They're not just putting in insulation and stuff like that, which would reduce their exposure to energy shocks, but they are actively investing in energy in a change in energy generation from, say, a gas to a wind and solar, and so this ends up being ends up having two implications. One is you get some investment, so and and we are seeing some of that more robust business investment showing up in the data, but you also end up being less exposed to the energy shock volatility going forward. So that is how the real side is remaining is is changing its behaviour in the face of energy volatiltiy."
• "We are in a situation in the UK where we've had inflation well above target, like well above target for the entire time that I've been in in in my position... so inflation has become embedded. And why am I particularly concerned going forward? Q1 is also when most of the wage settlements are negotiated... households are very attentive once inflation is above 3.5 and thereabouts... so they're going to start negotiating at a time when inflation is above four, when they've probably had a nasty Ofgem energy price energy price increase, and and there are two major groups... The two biggest ones are number one is at 40% of the workers. Basically, there are firms negotiate based on the minimum wage... in the past few years, those NLWs have been very, very robust, which is exactly what the Low Pay Commission wants to have happen. But there are macroeconomic consequences. There's another group that another 40% of of the workforce work in firms that negotiate somewhat like unions. They use bargaining, even if it's not a union, they bargain as if it's like a union. So you've got 80% of the workforce either going off of the minimum wage or going off of a environment where inflation is going to be running well above four, so that's embedded."

To clarify, while Le Pen’s comments re: wanting the ECB to step in to lower Eurozone borrowing costs does not sound particularly reassuring for markets on the face of it, it suggests that she is clearly attuned to market-based risks. This could be viewed as an OAT positive.

• Elsewhere, last week’s move would have forced liquidation of OAT tightener trades, so positioning on that front is cleaner, which may allow some to re-engage in cross-market longs if they sense a more OAT-friendly environment (at least in the immediate term). 

• That's now over 27bps drop for the French 10yr Yield since it topped out at the big Psychological 5% last Friday.
• Next resistance for the French OAT will be at the 4.70% Yield or 110.38, the equivalent in future.
• Both Italy and France 10yr are over 8bps tighter against the German 10yr.
• The German Bund has been ticking lower after European Gas price broke above Yesterday and Friday's high.