A Less Aggressive Holzmann Allows Recovery From Cheaps To Build, While Peripherals Tighten

The post-UK data bid in Gilts initially allows Bunds to move further away from session cheaps before comments from the usually hawkish ECB Governing Council member Holzmann, pointing to data-dependence, subliminally alluding to a stepdown in conviction re: hikes beyond the summer break (he previously indicated that rates need to be above the 4% mark to deal with inflation), provided a second round of support.

• The major German cash benchmarks sit flat to 1.5bp richer on the day, with the early cheapening impulse more than unwound.
• Terminal pricing on the ECB-dated OIS strip eases back below 3.90% in deposit rate terms as a result, which allows peripherals to add to the early tightening momentum. Greek paper is the outperformer, as the 10-Year GGB/Bund spread narrows by just over 4bp.
• Markets will have looked through an in line with flash final Eurozone CPI reading for May, although a slowing in the growth of Eurozone labour costs in Q1 may have aided the Holzmann-derived bid further.