Bonds Rally & Peripherals Tighten On Dovish Lane & Villeroy Combo

Core global FI rallies as ECB chief economist Lane notes that the breadth of the domestic inflation dynamic is narrowing, while pointing towards moderating wage growth pressures since late ’23 (based on the Bank’s wage growth tracker).

• Lane also warns on the risks of keeping policy restrictive for too long, while stressing that the bulk of the impact of the current tightening cycle with be relatively backloaded.
• Elsewhere, BdF Governor Villeroy (seen as an influential centrist) pushes back on the idea that the ECB could not move in back-to-back meetings, highlighting the need for “maximum optionality,” albeit with data dependence stressed.
• Bunds rally to fresh session highs of 130.40 on the move, while German yields are 3-5bp lower on the day as the bull steepening theme holds.
• Peripherals tighten further vs. Bunds, with BTPs now 2bp narrower on the day, at 128bp.
• Euribor futures rally (expect further colour on STIRs soon).