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EGBs-GILTS CASH CLOSE: Volatile Session As ECB Debates Inflation

BONDS

Thursday saw a very volatile session across the European FI space, highlighted by soaring Bund first futures volumes (1.2+mn, near March 2020 levels, eclipsed only by heavy Feb 2021 trading), and the 2nd highest daily BTP futures volume ever.

  • But direction, while overall bearish, not entirely decisive. The morning saw a large short-end sell-off with global rate hikes brought forward, then the start of the ECB press conference saw Bunds sell off sharply, only to reverse higher and then lower again. BTPs underperformed.
  • While the ECB (as expected) took no action and kept communications largely unchanged, Lagarde pushed somewhat back on market rate hike pricing, calling it inconsistent with ECB fwd guidance/infl forecasts, though "not for her to say" if markets had got ahead of themselves.
  • BBG/Rtrs sources articles post-meeting highlighted an internal debate over the inflation outlook, with some on the GC sceptical of a fall below target in 2023.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 1.6bps at -0.624%, 5-Yr is up 2bps at -0.445%, 10-Yr is up 3.5bps at -0.143%, and 30-Yr is up 1.2bps at 0.167%.
  • UK: The 2-Yr yield is up 8.6bps at 0.645%, 5-Yr is up 5.5bps at 0.763%, 10-Yr is up 1.7bps at 1.003%, and 30-Yr is down 2.7bps at 1.108%.
  • Italian BTP spread up 6.4bps at 118.6bps / Spanish up 0.5bps at 65.4bps
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