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EGBS: Supported By Soft Inflation Prints, Dovish ECB Repricing

EGBS
EurozoneBulletGlobalFixed Income BulletsRegionMarkets

Lower-than-expected flash inflation data from France and Spain supported EGBs this morning, with the implied probability of a 25bp October ECB cut reaching a new dovish extreme of almost 80%.

  • While the flash inflation prints were the only real market movers, other regional data released this morning has supported the case for more ECB cuts (ECB inflation expectations, German unemployed persons and the EC’s sentiment survey).
  • Bund futures are off intraday highs of 135.19 (with participants likely taking profit ahead of today’s US PCE release) but remain +40 today at 134.89.
  • The German cash curve has very lightly bull flattened, with yields 4.0 to 5.0bps lower today.
  • The 10-year OAT/Bund spread has tightened 1.5bps to 78bps, with some apparent interest in fading yesterday’s move above 80bp seen.
  • 5/10-year BTP supply was digested smoothly, but likely contributed to Italian paper’s underperformance this morning, with the BTP/Bund spread 0.5bps wider.
  • Broader macro focus shifts to the US PCE report, alongside potential commentary from Cipollone and Nagel. 
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Lower-than-expected flash inflation data from France and Spain supported EGBs this morning, with the implied probability of a 25bp October ECB cut reaching a new dovish extreme of almost 80%.

  • While the flash inflation prints were the only real market movers, other regional data released this morning has supported the case for more ECB cuts (ECB inflation expectations, German unemployed persons and the EC’s sentiment survey).
  • Bund futures are off intraday highs of 135.19 (with participants likely taking profit ahead of today’s US PCE release) but remain +40 today at 134.89.
  • The German cash curve has very lightly bull flattened, with yields 4.0 to 5.0bps lower today.
  • The 10-year OAT/Bund spread has tightened 1.5bps to 78bps, with some apparent interest in fading yesterday’s move above 80bp seen.
  • 5/10-year BTP supply was digested smoothly, but likely contributed to Italian paper’s underperformance this morning, with the BTP/Bund spread 0.5bps wider.
  • Broader macro focus shifts to the US PCE report, alongside potential commentary from Cipollone and Nagel.