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All eyes on the ECB

BONDS
  • All eyes are on the ECB meeting today, with markets pricing in around 34bp at writing (i.e. 25bp fully priced with around 35% probability of a 50bp hike priced). Following the Reuters sources piece earlier this week, the September meeting has moved to price in a cumulative 98bp and so if there isn't a 50bp hike today and the ECB doesn't strongly hint towards a larger than 50bp hike we are likely to see the curve come back a bit. However, whether that changes expectations of where rates will be in 1-2-years time is more debatable and there is still scope for the ECB to use hawkish language together with a 25bp hike. Note that the timings for ECB decisions have changed. The policy statement / decision will be released at 13:15BST / 8:15ET with the press conference beginning at 13:45BST / 8:45ET.
  • There will also be close attention paid to the anti-fragmentation tool, particularly now that Italian political instability (with Draghi resigning) has seen BTP-Bund spreads widen once more. 10-year spreads had been over 20bp wider on the day earlier, but are now back to 13bp wider at the time of writing.
  • The morning session has also been busy for issuance with Spain, France and the UK all holding auctions.
  • Elsewhere today we will receive US weekly claims data, the Philly Fed survey and the leading index.
  • TY1 futures are down -0-4+ today at 117-20+ with 10y UST yields up 1.9bp at 3.046% and 2y yields up 1.0bp at 3.239%.
  • Bund futures are down -0.36 today at 150.92 with 10y Bund yields up 3.0bp at 1.284% and Schatz yields up 4.3bp at 0.634%.
  • BTP futures are down -2.12 today at 120.73 with 10y yields up 17.1bp at 3.554% and 2y yields up 17.4bp at 1.932%.
  • Gilt futures are down -0.44 today at 114.74 with 10y yields up 4.5bp at 2.183% and 2y yields up 5.9bp at 2.110%.
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