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BONDS: Bunds Underperform Gilts Amid Cautious ECB Speak

BONDS
BulletMarketsFixed Income Bullets

Bund futures underperform Gilts, with this morning’s more cautious ECB-speak seemingly outweighing lower-than-expected consumer inflation expectations and stronger-than-expected money supply growth.

  • ECB’s Wunsch and Vujcic both consider the discussion of a 50bp cut in December to be premature, while Simkus provided more forceful pushback.
  • ECB-dated OIS continue to assign a ~40% implied probability of a 50bp cut next meeting,
  • The German IFO survey was stronger-than-expected, broadly mirroring yesterday’s flash PMI release.
  • UK headline flow has been limited, with focus still on speculation ahead of next week’s budget, which has been an important driver of the near-10bp widening of the Gilt/Bund spread since Wednesday.
  • Bund futures are -41 ticks at 133.10, with Gilt futures -11 ticks at 96.17.
  • The 10-year Gilt/Bund spread has tightened almost 3bps to 194bps.
  • 10-year peripheral spreads to Bunds are little changed. BTP Short Term and BTPei supply was digested smoothly.
  • Moody’s review France’s sovereign credit rating after hours (current rating: Aa2; Outlook Stable). At least an outlook downgrade seems likely.
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Bund futures underperform Gilts, with this morning’s more cautious ECB-speak seemingly outweighing lower-than-expected consumer inflation expectations and stronger-than-expected money supply growth.

  • ECB’s Wunsch and Vujcic both consider the discussion of a 50bp cut in December to be premature, while Simkus provided more forceful pushback.
  • ECB-dated OIS continue to assign a ~40% implied probability of a 50bp cut next meeting,
  • The German IFO survey was stronger-than-expected, broadly mirroring yesterday’s flash PMI release.
  • UK headline flow has been limited, with focus still on speculation ahead of next week’s budget, which has been an important driver of the near-10bp widening of the Gilt/Bund spread since Wednesday.
  • Bund futures are -41 ticks at 133.10, with Gilt futures -11 ticks at 96.17.
  • The 10-year Gilt/Bund spread has tightened almost 3bps to 194bps.
  • 10-year peripheral spreads to Bunds are little changed. BTP Short Term and BTPei supply was digested smoothly.
  • Moody’s review France’s sovereign credit rating after hours (current rating: Aa2; Outlook Stable). At least an outlook downgrade seems likely.