Fiscal Matters & Lagarde-Inspired Peripheral Spread Flow Supports

The previously covered Bund-supportive fiscal factors have been further aided by German Finance Minister Lindner confirming that the country is not taking on further net new debt this year, as the government approved its revised ’23 budget, along with softer than expected U.S. housing data.

• Comments from President Lagarde re: discussing PEPP reinvestments in the “not-too-distant future” will have provided support for Bunds via peripheral spread widening flows outlined earlier.
• EUR 5y5y inflation-linked swaps continue to hold ~1.5bp lower on the day, even with crude oil futures bouncing. German 10-Year breakevens (continued unwind of some of last week’s cessation of linker supply-inspired widening move) and TTF natural gas futures are still lower on the day, helping explain the move in 5y5y.
• Bund futures last show +85, just below 131.20, a little shy of best levels (131.24) after a look back above the 15 November high (131.22).
• German cash yields are 7-9.5bp lower across the curve, with the belly leading the bid.
• ASWs are still wider on the day, with the wings leading.