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Core Curves Twist Flatten, GGBs Tighten

EGBS

The early session impulses remain in play, even with the drivers of the much firmer than expected German factory orders data pointing to a lack of sustainability, while the market looked through mixed retails sales data (the prior month’s readings saw positive revisions). That leaves Bund futures -40, a little above lows, while the major German cash benchmarks run 2.5bp cheaper to 1.0bp richer as the curve twist flattens.

  • The remainder of the core/semi-core EGB curves see similar moves, leaving spreads vs. Bunds little changed.
  • Peripherals have generally tightened a little vs. Bunds, with GGBs outperforming, presumably on expectations surrounding the Greek attainment of IG status at Scope Ratings (after achieving that objective at Japanese agency R&I earlier this week). A quick reminder that such a step at Scope would not impact GGB inclusion in ECB purchases/major bond indexes, but would represent the latest positive on Greece’s recovery path. Pre-market musings from DBRS Morningstar on Greece would have done the tightening no harm, although the 10-Year GGB/Bund & GGB/BTP spreads remain off recent tights.
  • Recent comments from ECB’s Lane on expected inflation dynamics have gone over old ground, with no visible market impact.
  • U.S. NFP data is front and centre into the weekend, with Belgian supply also due.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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