Bunds Flatter, Spreads Generally Wider

Bund futures print a little shy of best levels of the day after the previously alluded to headline mix, Asia-Pac equity weakness & geopolitical worry allowed the space to firm early on.

• The contract last shows +35, with German cash benchmarks 2-4bp richer as the curve flattens.
• EGB spreads to Bunds are generally wider on the day, with the geopolitical jitters playing a large part there.
• Greek paper is the exception to that rule, narrowing by ~2bp vs. Bunds.
• Headline flow out of Italy has been seen. Firstly, outgoing BoI Governor Visco played down the likelihood of BTP spreads reaching levels that would trigger ECB action, while pointing to the need for fiscal prudence. Meanwhile, the country’s Finance Minister noted that he cannot rule anything out re: ratings agency action after discussions with those bodies, although he noted that he does not fear a ratings downgrade.
• ECB speak saw Governing Council member Kazaks reaffirm that he is happy with current interest rate settings, while he left the door open to further hikes, if required.