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ECB PEPP-talk driving EGBs

EGB SUMMARY
  • After Bunds gradually moved lower through the European morning session, the move accelerated after the ECB policy press release included a paragraph stating that the PEPP envelope may not be used in full if conditions warranted. This has been mentioned in the past but the fact it was added to the press release made the market speculate as to whether the ECB now saw this with increasing probability. Bunds continued to fall through Lagarde's opening statement in the press conference and fell as low as 176.75. However, Lagarde downplayed this change in the Q&A, helping Bunds and other EGBs off their lows.
  • Peripheral spreads have been mixed today with Greek and Cypriot yields falling, with 10y GGB spreads now 3.5bp lower on the day. Portuguese and Spanish spreads are largely unch with BTP spreads a tiny bit wider. We note that today 10-year GGB yields fell below 10-year BTP spreads. This last happened briefly in early December 2020 and was the case from June 2020 until mid-July. These are the only episodes since Bear Sterns failed in March 2008 that GGB yields have been lower than BTP yields.
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