EGBS: Bund Futures Off Highs Alongside USTs, OATs Underperform

The digestion of Scott Bessent as the US Treasury Secretary nominee provided support to core FI overnight/at the European open, but Bund futures have since followed USTs off highs, now +9 ticks at 133.20. The rally in Bunds late last week undermined the recent bearish theme and exposes the Oct 24 high at 133.54.

• Bunds were likely also pressured a little by the slightly stronger-than-expected expectations component of the German November IFO survey (87.2 vs 87.0 cons), given the degree of dovish ECB pricing already evident in markets, along with wider-held, elevated worry surrounding the health of the German economy.
• The overall IFO Business Climate component was nonetheless weaker-than-expected, underscoring the softness in Friday’s flash PMIs.
• Schatz yields are ~4bps higher, likely a combination of the IFO expectations and non-committal comments from ECB’s Lane and Kazaks at the open around the size of the (likely) December cut.
• The 10-year OAT/Bund spread has moved above the 80bp handle on the latest signs of fiscal slippage from budget minister Saint-Martin, 2bps wider today.
• EU bonds also ~3bp wider, with the presence of this morning’s EU-bond supply (bidding deadline 1030BST/1130CET) acting as an additional headwind there.
• Scheduled ECB-speak starts from 1600GMT with Centeno, followed by appearances from Lane, Nagel and Makhlouf.