Bunds Recover From Intraday Lows; Peripheries A Touch Wider

After initially seeing a bout of weakness as European desks filtered in, Bunds have recovered from intraday lows to trade 49 ticks higher at 134.49.

• Ongoing tensions in the Middle East over the weekend will have provided some background support to EGBs, with little other meaningful newsflow ahead of the ECB decision on Thursday (Jan 25), where main market interest will lie on the degree of pushback against current rate cut pricing.
• Initial resistance in Bund is at 135.34, the 20-day EMA. A clear break of the average is required to ease bearish pressure.
• OAT futures trade similarly to Bunds, currently +44, while BTPs have failed to sustain early outperformance to sit +34.
• This prompted the 10-year BTP/Bund spread to move away from its tightest levels in almost 2 years (reaching a low of 151.7bps today), currently +0.1bps wider at 154.2bps. Other peripheral spreads to Bunds are also a touch wider.
• The German and French cash curves have bull steepened on the day, with 5Y tenors outperforming across core/semi-core EGBs.
• Thursday's ECB decision highlights the weekly regional docket, though we also receive a slew of survey data including the flash PMIs (Weds) and the IFO (Thurs) in the next few days.