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EGBS: Curves Bear Flatten Following Stronger-than-expected Flash PMIs

EGBS
BulletEurozoneFixed Income BulletsMarkets

Year-end ECB implied rates have risen ~5.5bps today following the stronger-than-expected Eurozone January flash PMIs. EGB curves have bear flattened as a result, with 2-year Schatz yields 4bps higher and 30-year Bund yields up 1.5bps.

  • The PMIs also highlighted an acceleration in inflationary pressures across the Eurozone (with the exception of France), helping the initial hawkish reaction stick.
  • However, we note that German and French demand conditions remain subdued, according to the PMIs. Handelsblatt have reported this morning that the German government is set to downgrade its 2025 and 2026 domestic growth projections.
  • Bund futures are -31 ticks at 131.25. The 20-day EMA capped upside earlier this week, helping to keep the medium-term bear trend intact. Initial support is the Jan 16 low at 131.00.
  • 10-year peripheral spreads to Bunds have tightened despite the hawkish ECB repricing, with European equities rallying and the PMIs signalling continued growth outperformance for periphery countries relative to Germany and France.
  • ECB President Lagarde is currently speaking on a panel in Davos. Don’t expect any monetary policy signals though, with the ECB now in its pre-meeting quiet period.
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Year-end ECB implied rates have risen ~5.5bps today following the stronger-than-expected Eurozone January flash PMIs. EGB curves have bear flattened as a result, with 2-year Schatz yields 4bps higher and 30-year Bund yields up 1.5bps.

  • The PMIs also highlighted an acceleration in inflationary pressures across the Eurozone (with the exception of France), helping the initial hawkish reaction stick.
  • However, we note that German and French demand conditions remain subdued, according to the PMIs. Handelsblatt have reported this morning that the German government is set to downgrade its 2025 and 2026 domestic growth projections.
  • Bund futures are -31 ticks at 131.25. The 20-day EMA capped upside earlier this week, helping to keep the medium-term bear trend intact. Initial support is the Jan 16 low at 131.00.
  • 10-year peripheral spreads to Bunds have tightened despite the hawkish ECB repricing, with European equities rallying and the PMIs signalling continued growth outperformance for periphery countries relative to Germany and France.
  • ECB President Lagarde is currently speaking on a panel in Davos. Don’t expect any monetary policy signals though, with the ECB now in its pre-meeting quiet period.