EGBS: Supported By Fed Rate Cut Speculation

Bund futures gapped higher overnight, following US Treasuries higher amid growing speculation around a 50bp Fed cut next week. Since then, Bunds have been little changed, leaving futures +22 versus yesterday’s settlement at 134.95.

• Yesterday’s high provides (135.49) the first resistance, shielding the bull trigger which remains at 135.66 (Aug 5 high).
• There have been no less than 7 ECB speakers this morning following yesterday’s meeting, but none have added much new to yesterday’s guidance, where a “data-dependent and meeting-by-meeting” approach was retained. President Lagarde is scheduled to speak at 1030BST too.
• Eurozone industrial production was -0.3% M/M (in line with consensus), but we estimate that it fell 1.1% M/M when excluding the volatile Irish numbers.
• Short-end yields have been pulled lower by post-settlement rally in STIR markets, helping the German 2s10s curve to bull steepen ~1.5bps.
• 10-year peripheral spreads to Bunds are a little tighter. S&P and Moody’s are scheduled to review Spain’s sovereign rating after hours, with the latter also reviewing Greece.