Core EGB Curves Twist Flatten; Peripheries Outperform

Core EGBs have drifted off intraday lows after beginning the week under pressure, while peripheries remain the outperformers after positive Italian and Portuguese ratings decisions from Moody's after hours on Friday.

• Factors that contributed to the initial weakness include the overnight uptick in crude oil futures, suggestions out of the U.S. re: an agreement on the Hamas-held Israeli hostages moving closer and ECB-speak pushing back against the idea of rate cuts through last week and this morning.
• ECB hawk Wunsch noted today that rate cut bets have the effect of loosening financial conditions, increasing "the risk that you have to correct in the other direction". Comments from Vujcic this morning were not market movers.
• Bund futures are down -0.09 ticks at 130.95, with the 20-day EMA at 130.06 the first support. OAT futures are similarly lower, while German and French cash curves are both seen twist flattening.
• Periphery spreads are tighter to Bunds with Portugal and Italy outperforming - both BTP and PGB spreads to Bunds are over 4bps narrower today. Moody's rated Italy at Baa3 (outlook stable) after hours on Friday - upgrading the outlook from negative - while Portugal saw a two-notch rating upgrade to A3 (outlook stable). The 10-year PGB/Bund spread currently trades at the tightest levels since early 2022 at 60.3bps.
• The remainder of the docket today is light, with no notable data or supply. ECB's de Cos speaks at 1300GMT and Villeroy appears after hours at the Society of Professional Economist's dinner.