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Continued Dovish ECB Repricing Underpins Core/Semi-core; Peripheries Tighten


Core/semi-core EGBs rally through Friday morning, largely driven by continued dovish repricing in Euro STIR markets.

  • Bund futures are currently up 0.38 ticks today at 132.67 while OAT futures are up 0.42 ticks at 127.53.
  • Other drivers for the move include German Finance Minister Lindner acknowledging that the country will make adjustments to the expenditure side of its ‘24 fiscal plans given the well-documented German court ruling. Weak manufacturing PMIs from Europe won't have hurt the bid, alongside a lack of extension in the truce between Israel-Hamas overnight.
  • Cash curves are seen bull steepening, led by the short-end, with the German 2s10s up 2.1bp today at -34.5bp.
  • Periphery spreads to Bunds narrow owing to the supportive overall risk backdrop, with the 10-Yr BTP/Bund spread 4.1bps tighter at 173.8bps.A reminder that Fitch updates Greece's sovereign rating after hours, where an upgrade would make Greek bonds eligible for most IG indices for the first time since the Euro sovereign debt crisis.
  • The remainder of the docket sees scheduled comments from ECB's Lagarde at the Banking Supervision Forum and de Cos at a separate banking event. After hours yesterday, ECB's Nagel weighed in on the November inflation data with an expected hawkish lean.

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