Flattening Bias Seen Early Wednesday

The early rounds of Wednesday trade have seen yields in core EGBs and UK gilts tick away from recent multi-year highs, with equities stabilising and little in the way of fresh, meaningful news flow to digest.

• Eurozone money supply data saw a slightly larger than expected fall in Y/Y terms, as the impact of the ECB’s tightening cycle continue to bite.
• Bunds sit +20, just shy of best levels, sticking within yesterday’s range. German cash benchmarks show 0.5-2.0bp richer, with a light flattening impulse seen.
• Core EGBs are little changed to a touch tighter in spread terms vs. Bunds.
• Peripherals are mostly tighter, with BTPs outperforming after yesterday’s notable widening, aided by the stabilisation in broader FI and equities (spread 2.5bp narrower today).
• €IG issuance has continued to build at the corporate/semi level, while an RFP from the EFSF has been seen. Note that Germany will come to market with E4URbn of the 10-year 2.60% Aug-33 Bund shortly.
• Gilts also flatten, with cash benchmarks showing 1.5-6.5bp richer. Futures show +40, sticking within yesterday’s range. There was a smooth tender result for the 50-year 1.125% Oct-73 gilt, with a tight tail and decent premium to the prevailing market price.
• French & Italian fiscal optics are eyed today, with worry about deterioration in the Italian fiscal outlook a key driver of the recent BTP widening.