Bund Curve Bear Flattens, EGB/Bund Spreads A Little Tighter

The Bund curve holds the early bear flattening momentum, with the major benchmarks running 2.5-5.0bp cheaper after the overnight bid in Chinese equities provided some cheapening pressure for core FI markets from the get-go. Bund futures are ~25 ticks lower on the day, just off session lows.

• 10-Year semi-core and peripheral EGBs are generally a touch tighter vs. Bunds, with little market worry evident ahead of this evening’s potential sovereign rating update from S&P on France (current rating: AA; Outlook Negative). BTPs have tightened by 3bp vs. Bunds at the 10-Year point, outperforming regional counterparts.
• ECB’s Vasle reiterated worry re: high and persistent core inflation, along with highlighting the need for further tightening, requesting help from other policy areas. These comments failed to impact the broader EGB space.
• Futures roll volumes on EUREX have boosted activity levels in the background.
• Belgian supply presents the only auction hurdle ahead of the weekend, and shouldn’t be too impactful for the wider space, leaving calendar focus squarely on the impending U.S. NFP print.