EUROPEAN FIXED UPDATE: Core under pressure with Lagarde in focus before the TLTRO.III repayment update

Analysis details (10:35)

• Core benchmarks are under notable pressure, downside which seemingly commenced without a clear catalyst or driver and prior to the latest remarks from ECB’s Lagarde in what has been an otherwise relatively contained session.


• As it stands, Bunds are lower by 50 ticks, though they have most recently lifted incrementally from the lower-end of 139.17 to 140.50 parameters given some modest haven allure following Beijing City officials noting that COVID cases are consistently rising and scale is expanding.


• Prior to this modest paring, the complex was on a prominent downward trajectory which, despite initial choppy trade, was seemingly exacerbated by remarks from ECB’s Lagarde who emphasised that they expect to hike further and that withdrawing commendation may not be enough. However, despite sounding hawkish, the President’s language is in-fitting with recent communication and adds little to the ongoing discussion between 50bp and 75bp for December’s gathering.


• Elsewhere, participants are keenly awaiting the publication of how much banks are going to repay early at the first additional TLTRO.III repayment window, announcement due at 11:05GMT, before the higher rate of at least 1.50% vs prev. no more than -1.0% applies. Newsquawk preview for this is available here. Desks are particularly attentive to the periphery, given the possibility that any carry trade activity was particularly pronounced there vs the core, for any follow-up widening of spreads; a factor which may well explain why the BTP-Bund spread is essentially unchanged at 190bp, compared to the pronounced tightening seen in recent sessions.


• In wake of yesterday’s Autumn Statement, Chancellor Hunt has done the media rounds to defend criticism to his plans and thus far Gilts are trading broadly in-line with peers posting losses of circa. 70 ticks, though we have been below Thursday’s 105.29 trough at worst. For reference, October’s retail data was encouraging vs expectations but the likes of Pantheon caveat that a partial recovery looked likely and it will prove to be a false dawn.


• Finally, USTs are in-fitting with EGB peers and holding towards the lower-end of 112.06+ to 112.5 parameters, with Fed’s Collins (2022 voter) the only speaker on today’s docket from the Fed and follow’s Kashkari’s (2023 voter) pushback on the singular CPI print. Reminder, Collins post-CPI said she sees further Fed rate hikes and is too soon to call the peak; risk of over tightening on rates has increased.

18 Nov 2022 - 10:35- Fixed IncomeData- Source: Newsquawk