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BONDS: Gilt/Bund Spread Hits Multi-Month Wides Following Dovish ECB Repricing

BONDS
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The 10-Year gilt/Bund spread closed at multi-month wides yesterday and may start to attract tightener interest.

  • This week’s Eurozone PMI data has driven dovish repricing in the European short end, helping promote Bund outperformance.
  • ECB pricing through year-end now sits towards the dovish end of deliverable outcomes (assuming there is no upsizing to 50bp cuts before year-end), showing ~47bp of cuts over the remaining 2 meetings.
  • While the Eurozone growth outlook has no doubt deteriorated, certain pockets of inflation remain elevated, which should keep the ECB cautious when it comes to the pace of near-term cuts.
  • A reminder that several GC members have pointed to a once-per-quarter cutting pace, at least for now.
  • Meanwhile, ECB President Lagarde already played down the need to act on the back of one datapoint (namely September CPI readings, which the ECB already expects to come in on the low side).
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The 10-Year gilt/Bund spread closed at multi-month wides yesterday and may start to attract tightener interest.

  • This week’s Eurozone PMI data has driven dovish repricing in the European short end, helping promote Bund outperformance.
  • ECB pricing through year-end now sits towards the dovish end of deliverable outcomes (assuming there is no upsizing to 50bp cuts before year-end), showing ~47bp of cuts over the remaining 2 meetings.
  • While the Eurozone growth outlook has no doubt deteriorated, certain pockets of inflation remain elevated, which should keep the ECB cautious when it comes to the pace of near-term cuts.
  • A reminder that several GC members have pointed to a once-per-quarter cutting pace, at least for now.
  • Meanwhile, ECB President Lagarde already played down the need to act on the back of one datapoint (namely September CPI readings, which the ECB already expects to come in on the low side).