A Touch Firmer, GGBs & BTPs Narrow

The early European downtick in Bund futures was shallow, leaving the contract +15 at typing. The stabilisation came despite another fresh YtD high for crude oil futures.

• German cash benchmarks are little changed.
• Core/semi-core spreads to Bunds are little changed.
• BTPs & GGBs outperform at the 10-Year point, tightening by ~2bp vs. Bunds, with yesterday’s early widening fully reversed.
• QT discussions remain front of mind for peripheral participants. Post-ECB meeting comments have re-lit the debate after President Lagarde did her best to quash any speculation last Thursday.
• Elsewhere, Monday saw RTRS sources suggest that “ECB policymakers want to soon start discussing how to tackle the multi-trillion-euro pool of excess liquidity sloshing around banks.” The three focal areas of related discussions are set to be “the amount of reserves banks must keep at the ECB, the unwinding of its bond-buying programmes and a new framework for steering short-term interest rates.”
• While the sources suggested that related discussions on bond holdings could start as soon as the Bank’s next monetary policy meeting, some of the steps aren’t expected to be implemented until at least early ’24. This detail may be providing peripherals with some reprieve.
• Meanwhile, BTPs may also be leaning on a BBG report which points to the potential for EUR3bn of additional fiscal room for Italy, linked to upward ’21 GDP revisions (set for Friday release).