EUROPEAN FIXED UPDATE: Debt’s decline continues into a new week

Analysis details (10:50)

• European benchmarks have commenced the week under pronounced pressure following hawkish commentary from multiple ECB officials over the weekend, remarks that follow Friday’s sources around a 75bp discussion for September 8th.


• As such, Bunds are the clear underperformer posting losses in excess of 200 ticks at worst to a 147.92 low, taking out touted key support at 94 but stopping shy of the next potential support mark at 147.86, after which there is very little of note until 147.23 and the figure thereafter. In tandem, pronounced upside has occurred in yields and the German 10yr has now surpassed the July 2022 peak at a 1.54% best thus far, ahead of June’s 1.92% best. Price action that follows hawkish commentary from multiple officials over the weekend, including ECB’s Schnabel, on the bleak domestic inflation situation with the likes of Kazaks going as far as mentioning 75bp – in-fitting with Friday’s sources. Note, ECB’s Lane is due to speak later today and while the Chief Economist is always interesting his take on the situation, particularly as he is a known Dove, will draw particular scrutiny. For reference, the NextGenEU sale passed without fanfare.


• Interestingly, the BTP-Bund spread is relatively steady around the 230bp mark as the pronounced yield upside is occurring in both core and periphery markets. On the stabilisation, Goldman Sachs writes that they are sceptical that this consolidation can be sustained given the potential for ECB communication to drive German yields higher and as the Italian election looms.


• Note, UK participants are away for today for the August Bank Holiday with newsflow for the region focused on the September 5th PM announcement and potential measures to tackle the energy situation.


• Stateside, USTs are pressured in-fitting directionally with Bunds but magnitudes are somewhat more contained and the benchmark has managed to stabilise around session lows of 116.26+. Action that is seemingly a function of European hawkish pricing rather than domestic movement, as we await any fresh updates from officials following the Jackson Hole symposiums’ conclusion – with participants also cognisant of the heavy data slate for the week; ADP, ISM & NFP highlight.

29 Aug 2022 - 10:50- Fixed IncomeResearch Sheet- Source: Newsquawk