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BONDS: EGBs-GILTS CASH CLOSE: German 2s10s Disinverts As PMIs Come In Weak

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European curves steepened Monday as weak PMIs showed a pullback in regional economic momentum.

  • Eurozone (incl each of France and Germany) and UK flash September PMIs came in below expectations across the board on both Manufacturing and Services, adding further impetus to near-term ECB and BoE rate cut expectations.
  • An October ECB is now priced at 10bp (40% prob of 25bp), vs 5bp prior.
  • Against this backdrop, the German curve bull steepened, with 2s10s disinverting for the first time since Aug 2022. The UK's twist steepened.
  • OATS underperformed again (10Y/Bund +2.5bp), weighed down by continued political uncertainty and an FT report that France has requested a further delay in submitting its budget plans to the EC.
  • Periphery EGB spreads widened modestly, having reversed early session wides. Note that futures rallied through the cash close.
  • Tuesday's schedule includes September German IFO data and appearances by ECB's Muller, Nagel, and Escriva.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

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European curves steepened Monday as weak PMIs showed a pullback in regional economic momentum.

  • Eurozone (incl each of France and Germany) and UK flash September PMIs came in below expectations across the board on both Manufacturing and Services, adding further impetus to near-term ECB and BoE rate cut expectations.
  • An October ECB is now priced at 10bp (40% prob of 25bp), vs 5bp prior.
  • Against this backdrop, the German curve bull steepened, with 2s10s disinverting for the first time since Aug 2022. The UK's twist steepened.
  • OATS underperformed again (10Y/Bund +2.5bp), weighed down by continued political uncertainty and an FT report that France has requested a further delay in submitting its budget plans to the EC.
  • Periphery EGB spreads widened modestly, having reversed early session wides. Note that futures rallied through the cash close.
  • Tuesday's schedule includes September German IFO data and appearances by ECB's Muller, Nagel, and Escriva.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

Keep reading...Show less