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German Curve Has Room To Invert Further As ECB Hike Pricing Recovers

BUNDS
The German curve continues to flatten, though today it's of the twist flattening variety (vs Tuesday's bear flattening as ECB terminal hike pricing picked up sharply), with 2Y through 7Y yields up a few bp and 10s through 30s flat/lower.
  • 2s10s hit -44.4bp this morning, the most inverted since touching -44.5bp intraday on April 3, right after the weaker-than-expected US ISM Manufacturing data.
  • There's plenty of room for further inversion, with 2s10s extremes below -70bp hit prior to the US / Swiss banking turmoil in March.
  • The most likely scenario for a return to that degree of inversion involves a further recovery in ECB terminal hike pricing, which peaked at 4.17% on Mar 8, 50bp higher than current levels (and ~100bp from March's closing low).

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