EUROPEAN FIXED UPDATE: Bunds bounce on more poor Q4 data, BoE/Fed pricing eases from extremes

Analysis details (10:35)

• Déjà vu for Bunds with another data-driven uptick occurring at the start of the session as data at the beginning of Q3 seemingly adds conviction to the downbeat GDP nowcast via the most recent PMIs and expectations for a technical German and possibly EZ recession to conclude the year. Albeit, the magnitude of the EZ contraction is expected to be minimal. For Bunds, the print lifted the contract above the 135.00 mark and has seemingly driven the relative recovery since to a 135.71 peak. A move that stands in contrast to Gilts and USTs, which once again are softer as recent pronounced dovish pricing eases incrementally ahead of US NFP (Fri), CPI (Tue) and then the FOMC/BoE next week.


• Back to Bunds, the current high is probing a touted resistance band between 135.74-77 before 136.00 itself and then 136.15. In terms of yields, 2.20% was lost in short order for the 10yr with an approach to 2.15% seemingly on the cards. Given this, market pricing for the ECB remains very dovish with circa. 150bp of 2024 easing priced; though, it remains to be seen how bad the likely end-2023 German/EZ recession will be, how energy prices develop and if, as PMIs and the likes of de Guindos have highlighted, wage pressures become a larger area of concern.


• Amidst this, the periphery is also slightly firmer, very much being dragged higher in tandem with their German peer as yields slip further. Notably, the BTP-Bund spread remains comfortably around 175bp.


• Leaving the EZ, as mentioned both Gilts and USTs continue to pullback modestly with yields slightly higher and market pricing off its most dovish extremes, but still pricing 125bp and 75bp of easing from the Fed and BoE respectively in 2024. Specifics for the regions have been light thus far, though we do have US IJC ahead (non-payroll period) and then the 3,10,30yr announcement.

07 Dec 2023 - 10:35- Research Sheet- Source: Newsquawk