Core/semi-core EGBs Recover From Intraday Lows; Peripheries Widen

Core/semi-core EGBs have moved away from Asia-Pac inspired lows to trade a touch firmer on the day.

• BoJ communique re: exiting negative rates, alongside a weak 30Y auction were the main overnight impetus, pressuring Bund and OAT futures in early European trade.
• The move away from worst levels was aided by weaker-than-expected German industrial production data.
• That leaves Bund futures up 0.31 ticks today at 135.67, with the technical setup still implying a firmer short-term tone. The German cash curve is seen bull steepening, with 2s10s up 1.5bps today at -39.4bps.
• Supply from Spain and France may have weighed on the EGB space ahead of the respective bidding deadlines, though the OAT curve still outperforms German counterparts other than at the 2Y tenor.
• Periphery spreads are a touch wider as European equities remain under pressure - the 10-Yr BTP/Bund spread is 1.1bps wider at 174.5bps.
• Final readings of Eurozone Q3 GDP and employment were broadly in line with prior readings, though most interest will come from the underlying components (hours worked, productivity etc.).
• The ECB quiet period ahead of next week's meeting should come into effect today, leaving current pricing to be dictated by data/headline flow until then. Comments in an interview from BdF's Villeroy after hours did not push back on current cut pricing (he noted that "the question of a reduction may arise in 2024, but not now").