EUROPEAN FIXED UPDATE: BTPs bolstered on supply-side dynamics, Fed speak looms

Analysis details (11:00)

• BTPs are leading the fixed income complex with upside in excess of a point to a session peak of 117.26 vs trough 116.04. Action which is partially a function of the broader debt space experiencing a concerted bid in the second half of the European morning, but more so on supply-side dynamics as orders for the Nov 2028 BTP Italia have surpassed the EUR 4bln mark. On this, some desks believe that if funding of around EUR 6bln is achieved then this will likely be sufficient to prompt the cancellation of the mid-December BTP auctions.


• Crossing to the core, Bunds are similarly bid though to a lesser extent than periphery counterparts, with the German benchmark surpassing yesterday’s 139.26 peak by a handful of ticks at best and shy of touted resistance at 139.49 and 139.78. As mentioned, a concerted bid occurred as the European morning got underway though there was no overt fundamental driver for this at the time and was perhaps a function of benchmarks surpassing round-number technical marks in both Bunds and BTPs.


• Thus far, the morning has seen a hefty data and supply docket. Firstly, the data releases saw marked improvements to the German ZEW metrics; however, this is seemingly contingent on a belief of lower inflation offsetting some of the need for hawkish Central Bank action ahead. Secondly, supply from the UK and Germany has featured, with the UK’s outing robust but shy of recent performance and prompting Gilts to pull back to within a handful of ticks of the unchanged mark at worst from earlier upside in excess of 40 ticks. While the subsequent German outing was strong, particularly when considering 7yr sales have historically been poor, though was not sufficient to merit a breach of earlier peaks.


• Finally, USTs are moving in tandem with their European counterparts with yields lower across the curve as such by a handful of bps following Fed’s Brainard on Monday backed the FOMC downshifting to a lower increment of rate hikes in December, though reiterated that there was still work to be done. Note, Fed’s Barr, Cook and Harker feature throughout the session ahead.

15 Nov 2022 - 10:57- Research Sheet- Source: Newsquawk