Bunds Lower, Impact Of Sovereign Rating Updates Eyed In Periphery

Bund futures follow U.S. Tsys & JGBs lower, with the lack of an Israeli ground invasion of Gaza and the latest JGB source reports providing pressure in Asia-Pac hours.

• That leaves Bund futures -45.
• Technically, the medium-term trend direction in the contract is down and moving average studies continue to reflect this. An extension lower would open 126.62, the Oct 4 low and bear trigger. Key short-term resistance and the bull trigger has been defined at 130.20.
• Friday saw Greece attain IG status at S&P (the first such attainment at any of the ‘big 3’ post-sovereign debt crisis). This won’t result in inclusion in the major bond indices, but plenty of funds only need to see IG status at one of the ‘big 3’ to deploy capital. Therefore, the move could provide a bit of a tailwind for GGBs, even though it was largely expected/priced.
• BTPs may also see some reprieve after S&P affirmed Italy at BBB; Outlook Stable, although BTP/Bund spreads were already off recent wides into the weekend. Still, the fiscal situation in Italy will lead to continued focus on scheduled rating updates over the coming weeks.
• More broadly, the FT reported that the EU is mulling mulls gas price cap extension.
• Looking ahead, supply from the EU & Belgium headlines today, with a lack of tier 1 Eurozone data due. Consumer confidence provides the data highlight later today.