BONDS: EGBs Firm As Oil Softens & German Vote Eyed, Gilts Little Changed

Increased odds of an expedited German election process and weakness in crude oil futures drives a rally in EGBs this morning, although there has been a pullback.

• Risks to the implementation of the ruling German government’s supplementary Budget also factor into the rally.
• Bund futures +20 at 132.28 vs. highs of 132.61.
• Initial resistance now comes in at 132.73, with Friday’s high broken & the 20-day EMA pierced.
• Yields 2.5-3.5bp lower across the curve, bull flattening.
• Bund vs. 3-month Euribor ASW printed at ~1.2bp before fading towards 0bp. Sell-side names still cautious on the idea of long swap spread trades.
• EGBs generally outperform Bunds by 0.5-1.0bp, aided by the bid in European equities and modest dovish move in ECB pricing.
• No meaningful outperformance for SPGBs after Fitch moved Spain’s outlook to positive late on Friday, with the medium-term positive fiscal trajectory well-defined, albeit with increased spending surrounding the recent floods noted.
• Gilts lag Bunds.
• Futures traded as high as 94.43 before fading back to 94.00. Last -4 at 94.14.
• UK yields little changed.
• 10s ~3bp wider vs. Bunds, spread back out to ~210bp after last week’s late move away from fresh cycle wides. Truss mini-Budget wides still in focus (227.6bp).
• BoE-dated OIS and SONIA futures little changed vs. late Friday levels.
• Little of note on the macro calendar today, with the U.S. and areas of Europe observing a public holiday.