CPI Readings & BoJ YCC Tweak Result In Steeper Curves, EGBs Off Session Cheaps

The mixed CPI readings on the German regional front and out of Spain have provided further intraday vol. for EGBs after the BoJ-induced moves witnessed in Asia-Pac hours.

• Elsewhere, ECB speak has been mixed, with Stournaras anchoring himself to the dovish side of the debate, while some Governing Council members with a hawkish lean have suggested that the terminal rate hasn’t necessarily been reached, even if the Bank decides to leave rates unchanged in September.
• Cash German benchmarks run little changed to 6bp cheaper as a result, after recovering from cheapest levels of the session, with the curve steepening noted. Bund futures are -30,~90 off lows.
• Wider core/semi-core EGB trade has seen twist steepening of curves, with some focus on the sizable Japanese holdings of OATs post-BoJ YCC tweak, although sell-side names don’t seem worried re: the likelihood of a meaningful Japanese OAT disposal. Core/semi-core spreads vs. 10-Year Bunds are little changed, with early widening pressure for OATs vs. Bunds now reversed.
• Peripherals are mixed vs. Bunds, with Portuguese paper outperforming, tightening by 1.5bp, while GGBs widen by the same amount vs. Bunds.
• The German national CPI release provides the scheduled European highlight into the weekend, with participants also on the lookout for impromptu ECB speak.