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EGBS: Curves Bull Steepen After Weak November Flash PMIs

EGBS
BulletEurozoneFixed Income BulletsMarkets

EGB curves bull steepened after the November flash PMIs printed below consensus expectations. The German 2s10s curve has steepened almost 5bps to 25.6bps, sitting just off multi-year highs.

  • PMI weakness was particularly prevalent in the services components, a concerning signal given the importance of the services sector in supporting the Eurozone economy post-covid.
  • Schatz yields are over 12bps lower today, driven by a sharp dovish repricing in EUR STIRs. ECB-dated OIS now price a ~60% implied probability of a 50bp cut in December, up from ~20% this morning.
  • Bund futures trade close to intraday highs, currently +80 ticks at 133.28. The Nov 19 high at 132.99 has been breached, exposing 133.39 (38.2% retracement of the Oct 1 - Nov 6 bear leg).
  • 10-year EGB spreads to Bunds trade a little wider, with weak growth signals from the PMIs weighing on equities.
  • Focus turns to ECB-speak from Nagel and Villeroy (1300GMT) and Schnabel (1545GMT) for any post-PMI reactions. This morning, ECB Vice President de Guindos has already played down the difference between a 25bp or 50bp cut on the ECB’s overall policy trajectory.
  • US PMIs at 1445GMT will also be of interest.
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EGB curves bull steepened after the November flash PMIs printed below consensus expectations. The German 2s10s curve has steepened almost 5bps to 25.6bps, sitting just off multi-year highs.

  • PMI weakness was particularly prevalent in the services components, a concerning signal given the importance of the services sector in supporting the Eurozone economy post-covid.
  • Schatz yields are over 12bps lower today, driven by a sharp dovish repricing in EUR STIRs. ECB-dated OIS now price a ~60% implied probability of a 50bp cut in December, up from ~20% this morning.
  • Bund futures trade close to intraday highs, currently +80 ticks at 133.28. The Nov 19 high at 132.99 has been breached, exposing 133.39 (38.2% retracement of the Oct 1 - Nov 6 bear leg).
  • 10-year EGB spreads to Bunds trade a little wider, with weak growth signals from the PMIs weighing on equities.
  • Focus turns to ECB-speak from Nagel and Villeroy (1300GMT) and Schnabel (1545GMT) for any post-PMI reactions. This morning, ECB Vice President de Guindos has already played down the difference between a 25bp or 50bp cut on the ECB’s overall policy trajectory.
  • US PMIs at 1445GMT will also be of interest.