Curves Biased Cheaper & Steeper As Higher for Longer Reverberates

Higher for longer narratives from central banks on both sides of the Atlantic are seen as the major negative factor for core global FI markets at the start of the week.

• A move higher in benchmark European gas futures will also be helping.
• Roughly in line to slightly better than expected German ifo data was seen.
• Bund futures are through key technical support as German 10-Year yields register an incremental fresh cycle high above 2.78%.
• The German curve runs steeper, with benchmark yields 1-5.5bp higher on the day.
• Core/semi-core EGB spreads are little changed to Bunds, generally bear steepening.
• Meanwhile, peripherals trade mixed vs. German 10s, spreads within ~1bp of Friday’s levels. Early BTP narrowing surrounding weekend reports on amendments to the Italian bank tax (BBG flagged a document noting that “lenders can opt out of the tax if they allocate 2.5x the amount owed to strengthening their common equity tier 1 ratio as non-available reserves”) has more than reversed, with equities pressured, Italian fiscal worry and outright selling in core global FI markets re-widening BTPs.
• Comments from ECB’s Lagarde and Schnabel headline the eurozone docket today.
• Elsewhere, the EU will come to market with 10- & 30-Year supply, with the presence of that issuance a likely source of pressure this morning.
• The €IG supply slate is also building.