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EGB/Gilt: Backing Lagarde

BOND SUMMARY

European government bonds have broadly traded firmer this morning alongside gains for equities. The dollar has been on the front foot against G10 FX, while global oil markets have inched higher.

  • The gilt curve has twist steepened with the 2s30s spread widening 2bp.
  • Bunds have firmed and the curve has bull flattened. Cash yields are now down 1-3bp.
  • OATs have outperformed bunds with yields down 3bp and the curve close to flat overall.
  • BTPs have slightly outperformed core EGBs. Yields are now down 3-4bp on the day.
  • The ECB's Fabio Panetta has stated that while the outlook justifies exiting negative rates, this will be a gradual process. He further stated that the ECB should be ready to intervene to prevent any financial fragmentation.
  • Elsewhere, Olli Rehn argued that rates should be at zero by the autumn, with a 25bp hike in July. In addition, both Philip Lane and Klaas Knot indicated their support for President Lagarde's rate roadmap for policy normalisation.
  • The final estimate of German Q1 GDP matched the initial estimate.
  • Supply this morning came from Germany (Bund, EUR1.724bn allotted). In addition, France is selling a 15-year Green OATei, while Finland and Lithuania are selling 10-year bonds via syndication.
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European government bonds have broadly traded firmer this morning alongside gains for equities. The dollar has been on the front foot against G10 FX, while global oil markets have inched higher.

  • The gilt curve has twist steepened with the 2s30s spread widening 2bp.
  • Bunds have firmed and the curve has bull flattened. Cash yields are now down 1-3bp.
  • OATs have outperformed bunds with yields down 3bp and the curve close to flat overall.
  • BTPs have slightly outperformed core EGBs. Yields are now down 3-4bp on the day.
  • The ECB's Fabio Panetta has stated that while the outlook justifies exiting negative rates, this will be a gradual process. He further stated that the ECB should be ready to intervene to prevent any financial fragmentation.
  • Elsewhere, Olli Rehn argued that rates should be at zero by the autumn, with a 25bp hike in July. In addition, both Philip Lane and Klaas Knot indicated their support for President Lagarde's rate roadmap for policy normalisation.
  • The final estimate of German Q1 GDP matched the initial estimate.
  • Supply this morning came from Germany (Bund, EUR1.724bn allotted). In addition, France is selling a 15-year Green OATei, while Finland and Lithuania are selling 10-year bonds via syndication.