EUROPEAN FIXED INCOME UPDATE: Bonds bounce further after taking a breather

Analysis details (10:56)

In contrast to yesterday when pronounced risk aversion helped debt futures regroup, the latest leg up has come in the face of an equity revival after Monday’s mauling. Hence, the higher highs in Bunds and Gilts look more squeezy and forged from another bout of short covering than anything new from a fundamental standpoint, Bobl and Gilt supply in focus. On this, and chronologically, the DMOs 2033 sale saw a robust b/c for the lines first outing, but not overly surprising given the substantial post-launch concession. Swiftly followed by a shorter German Bobl sale, where an additional 10bp to the average yield and similarly robust cover sparked a marked pick-up in the Bund itself. Subsequently, 10-year EU benchmarks have been up to 152.48 and 119.06 (+75 ticks and +95 ticks on the day respectively) for Bunds and Gilts, while US Treasuries are comfortably above par, but off overnight peaks with the curve still re-flattening into the first and short leg of the Quarterly Refunding (USD 45bln 3-year notes). Note, the EGB complex was unphased by a mixed ZEW release which had familiar, but marginally less pessimistic, commentary incorporated. Finally, attention remains on the periphery after Monday’s BTP-Bund spread widening saw a 206bp peak briefly print; on this, Rabobank highlights that recent periphery yield upside has been accompanied by substantial moves for core counterparts as well, positing that the trigger point for ECB action could be lower than in previous episodes.

10 May 2022 - 10:56- Fixed IncomeResearch Sheet- Source: Newsquawk