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EGB/Gilt: Relief Rally for European Sovereign FI

BOND SUMMARY

European government bonds have rallied this morning alongside gains for equities and G10 FX versus the dollar. Given the lack of significant catalysts following last week's hawkish BoE and ECB meetings, this morning's moves may be more reflective of a relief rally than an immediate change of trend.

  • Gilts opened stronger and have held on to the majority of the early gains. Cash yields are 3-4bp lower on the day with the curve bull flattening.
  • Bunds have traded in a similar fashion with yields now 2-4bp lower.
  • OAT yields are down 3-5bp with marginal outperformance in the belly of the curve.
  • The BTP curve has bull steepened with the 2s30s spread widening 2bp.
  • The German trade surplus was smaller than expected in December (eUr7.0bn vs EUR11.0bn survey) on the back of particularly robust growth in imports.
  • Supply this morning came from Germany (Bund, EUR1.266bn allotted) and Portugal (OTs, EUR1.25bn). in addition, Spain is placing a 30-year bond via syndication with an order book in excess of EUR54bn so far.
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