EUROPEAN FIXED UPDATE: Core benchmarks little changed despite initial action, BTPs continue to lead

Analysis details (10:50)

• Bunds and Gilts are currently near the unchanged mark despite some fairly marked gyrations overnight and throughout the European morning amid the extensive geopolitical updates (see Commodities update) and the hot UK CPI release. A release which ups the ante heading into the December policy announcement and as such has led to a hawkish-tilt to market pricing between 50bp and 75bp moving to 50/50 vs a slight bias towards the smaller increment beforehand. While Gilts weren’t open at the time, the release sent both USTs and Bunds to session lows of 112.08 and 138.70 respectively. However, this proved to be short-lived with Gilts themselves now higher by circa. 40 ticks; though, the hawkish-bias for near-term policy has been evident in the SONIA strip during the European morning.


• Since then, fixed-specific drivers have been essentially limited to the supply side. Firstly, Bourse data shows that orders for Italy’s Nov 2038 BTP have eclipsed the EUR 6bln mark, the figure that desks have been attentive to as it is potentially sufficient to merit the cancellation of Italy’s mid-December auctions. As such, BTPs continue to outperform with gains of circa 40 ticks at present, though they have eased from earlier upside in excess of 60 ticks to a 118.23 peak. Notably, this has sent the BTP-Bund spread further below the 200bp mark, renewed narrowing which some desks have recently questioned the longevity of. The other factor has been Germany’s 2038 Bund sale, an outing which was well-received as is typically the case for the 15yr benchmark and thus did not merit any pronounced or sustained Bund reaction.


• Looking ahead, the session features a number of Central Bank speakers from the BoE, ECB and Fed. Firstly, BoE’s Bailey, Broadbent, Mann and Dhingra will speak to the Treasury Select Committee and will no doubt be questioned on today’s inflation release – on this, it will be interesting to get the views of dovish-dissenter Dhingra for any insight into her, and by extension Tenreyro’s, thinking before the December decision. Elsewhere, ECB’s Lagarde features before a number of Fed speakers including Williams, Barr & Waller followed by 20yr supply.

16 Nov 2022 - 10:50- Research Sheet- Source: Newsquawk